The public has been brainwashed about deflation.
We've been hoodwinked by central banks, governments, and the manipulators who pull the reins of those Trojan horses into believing that deflation is a deadly disease. It's not.
Deflation, left to its own devices, is nothing more than a necessary and healthy corrective counterbalancing of excesses that build up in free-market economies.
So, why are we browbeaten into believing that deflation is so bad?
Here's the truth about deflation and how its fearmongers are really screwing us over.
Why Deflation Fears Drive Policy
First of all, deflation is when prices of commodities and goods and services fall.
When they increase, that's inflation.
Historically, deflation is woven into our subconscious as causing the Great Depression.
Which is convenient for the fearmongers, who swear they'll do everything in their power to prevent another depression. Their rallying cry is "stamp out deflation."
But deflation didn't cause the Great Depression. Deflation was a byproduct of a series of bad government and central bank decisions.
The Great Depression resulted from the excesses of the Roaring Twenties, which triggered the stock market crash of 1929. That on its own didn't cause the Depression, either.
How the government and bankers handled the crash exacerbated what would have been a tough recession, but their mishandling blossomed it into the Great Depression.
That's where the fear of deflation comes from. But that's rubbish. In fact, it's a lie.
Fast forward to 2008. We had another stock market crash, once again caused by excesses. The crash led to the Great Recession. And we're still nursing the hangover.
All that happened, really, was that interest rates were driven down by the Federal Reserve and lending standards were lowered to allow mortgage borrowers and corporations and banks to leverage themselves to take advantage of rising home prices, rising stock prices, and rising derivatives prices in an orgy of excess and greed.
No big deal, that happens. When the game ended, as it always does, the free market, as it always tries to, hammered home prices, stocks, and derivatives.
But while consumers could have largely benefited from the resultant deflation, wealthy investors in financial assets, governments, and the private bankers who run central banks, lose money in deflationary times.
And they're just not going to let that happen.
How the Fed and Banks Benefit from Inflation
As prices of homes, stocks, derivatives, commodities, and just about everything were falling, the Fed and the government went into high gear, ratcheting up fears of another Great Depression and lowering interest rates as their first line of deflation defense.
Now, here's the thing. As consumers, we are better off when prices decline after they've been artificially inflated by excess capital coursing through the economy with increasing velocity and speculative leverage that accompanies fast-rising prices.
When the speculative bubbles burst and leveraged consumers, producers, banks, and speculators get margin calls, dump assets, and stop buying hand over fist, prices drop quickly.
That's the free market doing what it does best, correcting excesses.
But, while that's good for the economy and especially middle-class Americans struggling with limited resources, it's not good for banks and it's not good for governments.
About the Author
Shah Gilani is the Event Trading Specialist for Money Map Press. He provides specific trading recommendations in Capital Wave Forecast, where he predicts gigantic "waves" of money forming and shows you how to play them for the biggest gains. In Short-Side Fortunes, Shah shows the "little guy" how to make massive size gains – sometimes in a single day – by flipping large asset classes like stocks, bonds, commodities, ETFs and more. He also writes our most talked-about publication, Wall Street Insights & Indictments, where he reveals how Wall Street's high-stakes game is really played.