#30 Deflation is Accountability

It is that simple. Don’t believe me? Here’s an excellent research piece put out by the St. Louis Fed on changing trade relationships during and following the gold standard in the US.

And yet, 10 out of 10 Keynesian economists would tell you that deflation is a bad thing. Why? The answer is in the conclusion of the article.

It’s necessary to break down exactly what this sentence says, because Keynesian economists are not like you and I. They do not say what they mean and they do not mean what they say. All marxists believe that terms are free to be redefined to suit their ends. If you don’t yet believe that our monetary system is already Marxist, then you haven’t yet understood the nature of socialized monetarism.

“The hope was…a system with the discipline of gold…but not too constraining to induce unnecessary economic hardship”. In this instance, they are referring to the economic hardship elicited by spending during the great war and the second world war. Economic hardship caused by the costliness of war is a product of natural market forces. Fiat monies obscure this reality.

Obfuscation of reality does not change reality. Spending on behalf of governments is the redirection of existing capital from the constituency (capital which could be saved or used for other means) to the purposes of the government. While this spending does stimulate some economic activity, the opportunity cost of that capital is certainly never in the best interest of the individuals from which it was taken…unless of course those individuals are on the receiving end of lucrative government contracts. See the Broken Window Fallacy.

Deflation, as opposed to inflation, causes the real cost of debt to increase, rather than decrease. This is because the nominal capital expended yesterday is worth more in real terms today. The exact opposite of the incentives for a government which can print its own currency and lend to itself to both decrease the real cost of its liabilities and simultaneously increase its nominal spending. By forcing the nominal cost of debt to maintain its parity with reality, markets demand that allocation of capital be in the best interest of acting individuals.

But regardless of how you feel about nation states and the unchecked expansion of their own credit and spending, which I assure you is almost always mal-investment… Inflationary economic paradigms beget more inflation. Deflationary economic paradigms beget more deflation. Asset holders win in the former, and laborers and savers win in the latter.


Book of the Month:

The Ethics of Money Production by Jorg Guido Huulsman

-“Credit money is only a derived kind of money. It receives its value from an expected future redemption into some commodity. In this respect it crucially differs from paper money, which is valued for its own “Paper money must not be confused with credit money made out of paper, or with money certificates made out of paper. The latter can be redeemed into commodity money; the former cannot”

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