Everyone in the economics, financial, government, and politics businesses has a theory, a viewpoint, a thesis, a position, and policy proposals which derive ostensibly from said theses. In fact, the thesis is more often than not created to fit the policies various individuals and groups may favor for reasons of their own perceived self-interest. There has been an endless debate in financial and economist circles between those predicting inflation, and those forecasting deflation. These contradictory positions have been mirrored in the governmental and political realms as well, with inflation-phobes demanding an end to money-printing, sharp cuts in spending -- particularly entitlements -- and, in the case of a few honest men, advocacy of tax increases or new taxes in order to bring government income into some reasonable relationship to government spending, itself seen as the necessary defense against a dangerous inflationary spiral. The deflation-phobes, by contrast, warn that unless stimulus is maintained and/or increased, and unless the central bank continues to support the economy and the financial system through continuous mone-printing and immense liquidity production, that we will be at serious risk of falling into a deflationary depression. The generality of economists, financial gurus, many politicians, the media, and the general public are firmly in the inflation-phobic camp, and are demanding deficit reduction, debt reduction, spending cuts. (Many of these same folk are, of course, irrationally demanding tax CUTS which will allegedly produce magical economic consequences). Be that as it may, it is the DEFLATION-PHOBES who are in command of the financial system and of the federal government. They are under intense pressure and their policies are extremely unpopular, to be sure, but they continue to proceed in accordance with their policies under the High Priest of Deflation-Phobia, Chairman Bernanke. While everyone seemingly has a position, buttressed by a theory and a system of ostensibly compelling logic, it is notable that little attention has been paid to the sole exemplar among major economies of the consequences of a collapse in monetary expansionist bubbles. It is only Japan, among major economies, which in our lifetimes has experienced such a collapse and the attendant consequences. The Japanese experience, as we see it, demonstrates the UNSTOPPABILITY OF A DEFLATIONARY DEPRESSION subsequent to a massive bubble burst in a super over-leveraged economy and financial system. Japan has attempted all of the standard and textbook remedies, ranging from Keynesian deficit spending on a monster scale (to the extent that Japan's governmental debt is TWICE the GDP, unparalleled among major economies)to Friedmannesque helicoptering in of money. Of course, we have been assured that the Japanese have been incompetent in their struggle against deflation, while we, with our most esteemed central bank and government leadership, are vastly more competent. We moved earlier against the deflationary trend, more aggressively, and on a much greater scale than the Japanese, who proceeded too slowly and too timidily before they came to grips with a deflation which got out of hand -- as witnessed by the fact that DEFLATION CONTINUES IN JAPAN, 20 YEARS AFTER THE INITIAL PUNCTURE of the Japanese stock market and real estate bubbles. We are, as our readers are well aware, far indeed from admiring in our view of the competence, forecasting ability, and policymaking skills of our own central. As for the federal government's abilities, well, the less said the better. The bottom line for us is just this: the burden of proof that we will avoid a general deflation with its INEVITABLE DEPRESSIONARY CONSEQUENCES is on the shoulders of the inflation-phobes. Moneysage - 2009 - copyright |
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