Home > Inflationary Targets Will Fail; World Stuck In Deflationary Super-Cycle (GLD, SLV, AGQ, IAU, TLT, TBT)

Inflationary Targets Will Fail; World Stuck In Deflationary Super-Cycle (GLD, SLV, AGQ, IAU, TLT, TBT)

January 23rd, 2013

inflationEconMatters: True Wealth Pie Decreasing

Japan came out with their long awaited 2% inflation target, and currency devaluation scheme, but it is doomed to fail. It will fail like all these government and central planning currency devaluation schemes because the one point that nobody gets right now is that the entire world is in the middle of a twenty-five year Super-deflationary cycle because there is a depreciating pile of total wealth in the world. In short everybody is broke!

Mature Governments all in Debt

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Most governments are heavily in debt, they are ultimately going to be forced to cut back spending through austerity programs. Most governments are going to have to raise taxes for the next 25 years, taking more money from both businesses and citizens. This all results in less disposable income to purchase products, and much lower margins for all companies for the next 25 years as competitive pressures fight over a smaller overall pie of disposable income.

50 Years of Leveraging Cycle

Most analysts expect a Super Inflationary Cycle due to the massive amount of currency devaluation and money printing schemes around the world. But ultimately, the reason everyone is trying to devalue their currencies is because everyone is broke, and the entire world has lived well beyond its means for 50 years.

Simply devaluing the currencies is not going to change the wealth pie in the world which is shrinking because it was built to such an artificial level for 50 years, the contraction phase of not having anything backing this inflated wealth will take 25 years of contracting to get back to sustainable levels.

Contraction Pressures Stronger than Temporal Artificial Currency Measures

Central banks can artificially try to create inflation, and may even have slight upticks in inflation, but ultimately we will still be in a contraction phase because the contraction pressures are greater than the central banks can devalue the currencies over the long haul.

And you start to see the lessening effect of each round of QE Infinity. It ought to be a tell-tale sign when central banks are conducting all these loose monetary policies globally and this is all the inflation they can create!

When the Fed stops their program at the end of the year because they basically are running out of competent bullets, the contracting will start all over again.

Japan will be contracting for another 20 years

The same thing will happen in Japan as well. They may get a slight uptick in inflation for 6 to 12 months, but these artificial means in a cyclical deflationary environment in the country means that the BOJ is simply swimming against the tide, and eventually the swimmer tires, and the stronger force prevails.

Japan simply is non-competitive, has poor demographics, their time has passed, and they are broke. All these contractionary forces ultimately prevail and the artificial measures simply cannot overcome poor fundamentals for their economy, and the global economy at large.

Somebody has to Pay!

So at times it will seem that there are bouts of inflation in the economy, but because the global economy is broke in overall wealth, i.e., everybody needs more money, somebody has to pay and margins just come down as what gives is the amount of “Actual/Real” money that consumers and businesses have to procure goods in the overall global wealth economy.

The World Cannot Afford Inflation

Another way to say this is the world cannot afford inflation, and governments can try to print their way to prosperity, and in the process artificially raise prices, but consumers cannot afford higher prices, the global economies contract, and this results in slower growth. And the entire deflationary loop just continues down the contracting process of a 25 year Super Cycle that feeds into itself.

All the mature economies are still trying to put off deleveraging through various means, and the emerging economies haven`t even started to deleverage yet? But the underlying fundamentals are such that deleveraging is the only way that the economy can get back to the sustainable levels needed for the economics of growth to match the underlying financial wealth/health of the world.

Related Tickers: SPDR Gold Trust (NYSEARCA:GLD), iShares Silver Trust (NYSEARCA:SLV), ProShares Ultra Silver (NYSEARCA:AGQ), iShares Gold Trust (NYSEARCA:IAU), ProShares UltraShort 20+ Year Treasury ETF (NYSEARCA:TBT), iShares Barclays 20+ Year Treas Bond ETF (NYSEARCA:TLT).

Econ MattersWritten By Dian L. Chu From EconMatters 

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  1. February 1st, 2013 at 01:09 | #1

    The article is correct in spirit, you might say…but technically, there’s some key things missing from this examination. Namely, price-decreases and deflation are not the same thing. We can expect price decreases in a lot of areas (gas, for instance) as the economy worsens. That is due to supply and demand fluctuation, not deflation. A bad economy and limited demand can certainly mask inflation, but inflation is like gravity: if you throw a trillion dollars in the air, it must come down at some point. And that’s where we are now. Inflation is rising (and yes, as the comment above points out, CPI calculations today grossly under-report true inflation factors), and we can’t even see the tip of the iceberg yet. We see agricultural commodities sky-rocketing, and we call that inflation…but it’s pseudo inflation. It is manufactured inflation, not really the result of true market demand vs. supply forces. For the most comprehensive examination of the current economic factors influencing inflation, check out the Stately News Report article posted today.

  2. rob
    January 28th, 2013 at 15:12 | #2

    This is by far the most the smartest article I have read and I read 10-20 per day. It explains to me why my corporate, muni revenue, and junk bond funds are still working while all the experts tell me I am wrong. It seems all the printed money floating around has gone to fund government and bail out banks and NONE of this money has made it to mainstreet or people who work. It makes total sense to me as our world wide standard of living is now going down not up.

  3. ryan
    January 25th, 2013 at 14:49 | #3

    wow, disagree with a lot of what you just said there. have you ever looked at how the government calulates CPI?

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