You don't notice inflation or deflation until they have gotten out of control.
Strictly speaking, inflation means that 'money' is being created while deflation means that 'money' is being destroyed; not gold-money mind you but interest bearing units of exchange that have been borrowed from the Federal Reserve and lent to banks, corporations and institutions who in turn lend them out again and sometimes back to the Fed from where they came as part of a daisy chain of debt emblematic of U.S. dollars having no intrinsic, tangible value, only an unstable, intangible, exchange value.
Mild inflation and mild deflation, and the business of creating and destroying exchange units, is not good or evil in itself, some argue. It's the necessary coiling and uncoiling of the money supply that has, for close to 100 years, since the introduction of the Federal Reserve Bank and America's exchange units in 1913, resulted in the 2-step inflationary 'boom' and a 1-step deflationary 'bust' that we've grown accustomed to.
But mild can turn wild when the system gets out of control.
Out of control inflation is when the Fed lends trillions of exchange units at a rate faster than the bankers can hide them off their balance sheet.
The price of tangible stuff like food and shelter goes wildly up - as the over supply of exchange units circulating in people's pockets crash in value requiring people to dig deeper for more of them to buy the same amount of stuff.
The Fed in this case (doing the exact opposite of what it was chartered to do) keeps lending more exchange units because everyone wants to borrow and buy more stuff before prices move up again.
In this hyper-inflationary scenario, some bankers get rich, everyone else gets poor; gold retains its value (but it's hard to get).
Deflation, when it gets out of control, is when the Fed lends trillions of exchange units at a rate slower than the bankers can hide them off their balance sheet. Keep in mind that these banking intermediaries are completely unnecessary for America's economy to work - they are parasites set up by themselves for themselves - in fact, Constitutionally speaking, the Fed, and its usurious money lending acolytes are illegal under Article 1, Section 10 of the Constitution.
I digress, getting back to deflation, the price of tangible stuff like food and shelter goes wildly down - as the scarcity of exchange units circulating in people's pockets zoom higher in value.
The Fed in this case (again, doing the exact opposite of what it was chartered to do) stops lending exchange units because nobody wants to borrow any until prices stop dropping, so although the exchange value of dollars is high, it's virtually impossible to get any.
In this hyper-deflationary scenario, some bankers get rich, everyone else gets poor; paper money retains its value (but it's hard to get).
To understand the current economic crisis in America you have to understand that the exchange unit creation and destruction cycle took a detour during the Reagan years and a new super cycle of exchange unit creation (without an adequate offsetting destruction) was born from the ashes of that period's rush to deregulate the banking sector - resulting in the S&L crisis, the October 1987 stock market crash, the dot-com bubble (and crash) and the real estate bubble (and crash). All financed by public losses guaranteed by the government to make some bankers rich and everyone else poor. Rewards were capitalized and privatized and while risks were monetized, securitized, and socialized.
This period of rapid financial deregulation and money supply growth in America happened at the end of fixed commissions on Wall Street, so bankers were on the prowl looking for new ways to make quick bucks. At the same time we saw the introduction of listed options on the Chicago Board of Options Exchange (CBOE) based on the new 'science' of quantifying volatility per the Black-Scholes option pricing formula.
Think of the option volatility formula and the introduction of listed options as similar to Einstein's E = MC2 and the introduction of nuclear weapons, but instead of splitting the atom into mass and energy - listed options allowed 'financial engineers' (like Michael Milken) to split the dollar into separately traded units of reward and risk with the result being the current 750 trillion dollar derivative mushroom cloud exploding in our face and destroying fiat currencies around the world, principally the dollar.
The black hole on Wall Street that is about to swallow the U.S. economy.
Normally, the US would have had a deflationary recession to mop up the excess liquidity and give some purchasing power back to the Ponzi's on Main Street that are mainly just chum for the sharks on Wall Street, but instead, the Fed has taken greed to new levels and has sought to continue padding the off-balance sheet accounts of the bankers like Fannie Mae and Freddie Mac with inflationary schemes that put trillions of their debt onto the public's balance sheet.
So by not deflating the supply of fiat, debt-based exchange units for so many years, the over supply of them, each a claim on America's future, has grown by quantum levels of risk.
In other words, there is no rate of destruction of capital (i.e., exchange units) at this point that will ever wipe out the over supply in the system; even if the price of all the trillions of US government exchange unit based dollars and dollar-bonds in circulation went to zero there would still be trillions worth of worthless exchange units left over hiding in the 'dark pools,' back alleys and unreported accounts of the Fed, JP Morgan, Goldman and the rest of the financial alchemists who have incinerated America's economy.
Predictions:
1) The price of gold and the Dow Jones will reach parity between 4,000 and 5,000 (i.e., gold will trade between $4 - 5,000 as does the Dow Jones Industrial Average).
2) America's sovereignty, as defined as percentage ownership of American financial assets, principally U.S. government bonds (soon to no longer be rated AAA), will be mostly in the hands of foreigners.
3) China will buy Fannie Mae and Freddie Mac and in so doing become America's biggest land lord.
4) Very few of the current Bush administration, family, and close associates will be living inside U.S. borders within 6 months after leaving office.
5) The Presidential election in November will be delayed due to a global financial crisis.
6) The U.S. military in Iraq and Afghanistan will start to run out of money and be left to get out on their own resulting in American mercenaries hiring groups like the Taliban to escort them out of the region, with Bin Laden getting a commission on each deal.
7) Russia will emerge as the new power broker in a post-America world restoring financial order between America, the largest debtor in the world and China, the largest creditor in the world.
James Turk: "Thanks Max. A great article. I particularly like your description how "exchange units" can never be destroyed fast enough to wipe out the new supply. The predictions are thought-provoking too, particularly the one about China."Bob Moriarty: "Wrong on one. Bush has a letter on his desk to take control of the country in an emergency. The election won't be postponed, it will be canceled. GB is the last president of the US."
Alec Baldwin: Those seven predictions are some of the coldest s***I have read in quite some time."