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 boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board of Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker.
The work he did laid the foundation for what would later become the VIX - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk, and established that company's "listed" and OTC trading desks.
Shah founded a second hedge fund in 1999, which he ran until 2003.
Shah's vast network of contacts includes the biggest players on Wall Street and in international finance. These contacts give him the real story - when others only get what the investment banks want them to see.
Today, as editor of Hyperdrive Portfolio, Shah presents his legion of subscribers with massive profit opportunities that result from paradigm shifts in the way we work, play, and live.
Shah is a frequent guest on CNBC, Forbes, and MarketWatch, and you can catch him every week on Fox Business's Varney & Co.