Skip to main content

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage. The opinions expressed are those of the author and do not represent the views of TheStreet or its management.

VANCOUVER (

Bullion Bulls Canada) --Since the general public is never exposed to the "virtuous" side of deflation, I will devote a commentary to briefly summarizing the many, powerful economic benefits, which can only be realized when the ("free market") forces of deflation are allowed to operate in our economies.

Higher Standard of Living:

Contrary to what we are constantly told by the fear-mongers, it is deflation which raises the standard of living for the general public, and inflation which destroys our standard of living. This is nothing but simple arithmetic. The fall in prices of computers and big-screen TV's has literally made us wealthier, as it takes less hours of our labors to pay for these goods today than it used to.

If the prices for food and clothing started to fall, we would get wealthier still. Indeed, this is precisely what occurred over a decade ago -- when multinational clothing manufacturers shipped their textile plants to low-wage Asian jurisdictions. The prices for most items of clothing fell significantly, and all of these hypocritical fear-mongers hailed this as a "huge win" for individuals, since it made us wealthier.

Contrarians will argue that this manufacturing exodus hurt rather than helped our economies. This isn't true. What hurt our economies was our governments bestowing "free trade" upon multinational corporations before they had begun to make any plans to re-train their workers and begun developing new, high-end sectors to attract capital and create jobs in our own economies. The result was an unnecessary exodus of jobs and capital.

In other words, it was not (directly) either "free trade" nor the "deflation," which hit some sectors, that has caused all of the economic harm here. Instead, it was the corrupt and incompetent manner in which our governments served the interests of large (Western-based) multinational corporations, while giving zero thought to the well-being of their own people.

We can suddenly see a huge schism in the thoughts and words of these hypocritical fear-mongers. When deflation benefits those at the top it is called "a good thing," but when it benefits the general public it is "the ultimate evil."

Conversely, the fact that inflation destroys our standard of living is crystal-clear when we view the economies of less-complex Third World economies. We literally see riots in the streets of many of these countries, because the rampant, global inflation triggered by Ben Bernanke's infamous

"Quantitative Easing II" has made all of these poor people very poor, in a matter of months.

The only reason we haven't been similarly impoverished (yet) in our own economies is because our governments are borrowing and spending countless trillions (that they will never/can never repay) to shield us from the effects of their incompetence and corruption -- while they simultaneously blame the average citizen for our "unreasonable expectations."

Purges Excess From Markets:

Deflation is the great bubble-destroyer. No asset-bubble can ever withstand the economic "shock" of deflation. Again we see the hypocrisy of politicians and bankers (and the media talking-heads who parrot them).

First these individuals create asset-bubbles (through their reckless, inflationary policies). After they have created these bubbles, they confess to their own foolishness, however they still refuse to accept the "prescription" (deflation) for the "disease" they have created. Like the drug addict, these inflation addicts know that inflation is harming themselves (and everyone around them), and like the weakest junkie, they continue to refuse the "rehab" of deflation.

Reallocates Capital From Inefficient to Efficient Uses:

Part of the reason why most Western economies are careening toward total collapse is that they are

Scroll to Continue

TheStreet Recommends

drowning in debt. However, a large driver of that debt is the gross inefficiency of our economies. Here the example is painfully obvious: the United States.

Over just the last decade, the U.S. economy has created

more and larger asset-bubbles than every other asset-bubble in every other nation, combined (throughout history). At the same time, the U.S. government has engaged in the most extreme and reckless economic policies in the history of humanity to prevent the healing powers of deflation.

The result? The U.S. economy has misallocated its capital to the greatest extreme in the history of economics, and become the world's largest deadbeat. The nation that was the largest manufacturing engine the world had ever seen (until China?) has been transformed into an anemic weakling, composed of roughly 90% wealth-draining consumption and

totally-parasitic banking.

It should be noted that the U.S. became the world's largest economy, the world's

wealthiest economy , and the world's most-productive economy after many, painful deflationary episodes. As Salerno points out in his presentation, every one of those "painful" episodes was directly caused by years of inflationary excesses which immediately preceded it.

Like the alcoholic, the deflation-hypocrites blame the "hangover" for their misery, not the excessive drinking from the night before. In fact, all of the U.S.'s most productive eras immediately followed deflationary episodes (unless such recoveries were delayed by war). Like the most-deluded alcoholic, the deflation-hypocrites claim that if they can just be allowed to chug ever-increasing amounts of alcohol that they need never experience another hangover.

In the real world, however, continuous drinking doesn't prevent hangovers; it causes death. Similarly, preventing deflation from healing the economic wounds caused by reckless, banker-driven inflation isn't going to lead to "prosperity," but instead this suicidal folly must lead to the "death" of all of our economies (i.e.

hyperinflation and/or debt-default).

Even given the fact that our leaders (and the bankers who "guide" them from the shadows) are selfish, incompetent, corrupt, greed-driven hypocrites, readers must still be scratching their heads as to why these individuals display such a pathological fear and hatred of "deflation," given that deflation offers so many collective benefits. "Addictive behavior" alone, cannot explain this irrational behavior, nor the multi-decade propaganda campaign to deceive the general public about inflation and deflation.

Instead, their behavior can be completely explained through a single, immutable economic principle: the severity of any and every deflationary episode is directly proportional to the level of excess of the inflationary "boom" (i.e. asset-bubble creation) which preceded it. Thus, it is not "addiction," but naked fear which motivates these hypocrites to both avoid deflation at any cost, and lie about it at every turn.

More specifically, deflationary episodes inevitably destroy the greediest individuals of societies (since they are always the most over-extended), and inevitably expose insolvent governments. Do people now have a better understanding as to why no bankers or politicians ever tell the truth about deflation?

This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.