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A Few Notes on Deflation/Inflation January 18, 2021
The consensus is that asset inflation is unstoppable and forever. History begs to differ.
Not unsurprisingly, people want a binary option: do we get deflation or inflation? Unfortunately, reality is messy. Broadly speaking, globalization is deflationary as capital seeks the lowest cost labor, parts and materials, the least stringent environmental standards and the most corrupt governance to maximize profits by any means available (in this case, exploitation and corruption). Wages lose purchasing power as every labor force competes with the cheapest available pool of global labor, and domestic companies must lower prices or face obliteration by the global corporations. Broadly speaking, financialization is inflationary as the costs of services increase as financialization enables monopolies and cartels to dominate entire sectors. Once they control the sector, they increase prices while lowering quality to maximize profits by any means available (in this case, monopoly, cartels and political corruption). As the profits gush in, corporate monopolies and cartels can "invest in corruption" by using a sliver of their profits to buy political favors and protection. Financialization lowers the cost of credit to corporations and financiers, giving the largest entities an unmatchable competitive advantage: they can borrow immense sums at near-zero cost and use this money (or newly issued stock) to buy competitors, insuring their monopoly won't be challenged by either regulations (since politicos and bureaucrats have been bought off) or competitors (all bought out with "free money".) While many hold that inflation is always a monetary phenomenon, real-world scarcities are also inflationary. If you were waiting in a long line at a gas station in 1973, hoping to get a tank of gas at only double the price of a month earlier, you'll know that scarcity is absolutely marvelous at sending price soaring regardless of what's happening with the money supply. So inflation can be driven by either or both monetary and scarcity dynamics. Enter the pandemic. Needless to say, restrictions in travel and gatherings are deflationary in travel-leisure-dining sectors as airlines lower prices to compete for a shrinking pool of passengers and surviving restaurants suppress prices to attract scarce customers. As millions of workers lose their jobs and depend on unemployment, the insecurity of future income weighs on overall consumption. Lowering the cost of credit does little for these sectors while rocket-boosting speculation and financialization. The monetary "solution" to deflation is always the same: lower interest rates to zero and flood the financial sector with unlimited liquidity. The resulting stock market bubble and corporate orgy of borrowing and stock issuance are predictable results of unfettered, near-infinite financialization. But lowering the cost of credit and incentivizing monopolies and cartels to expand their control doesn't actually help the economy. Enabling rapacious monopolies and cartels is systemically inflationary, while lowering the cost and availability of credit also increases the attractiveness of automation as a means of lowering labor costs, a dynamic that is deflationary as lower wages equals lower consumption. The reality is relatively few gig economy workers earn a middle-class income working 40 hours a week. The large-scale reduction of wage and benefit security--i.e. the transition to a precariat work force--is highly deflationary in terms of wages and consumption, as precariats cannot count on future earnings being reliable or sufficient. The political "solution" is Universal Basic Income (UBI) as a means of supporting consumption. But supporting the consumption of essentials doesn't magically incentivize innovation or the expansion of capacity and real-world production. Meanwhile, the Federal Reserve will continue giving unlimited "free money" to corporations and financiers to increase the concentration of financial and political power in the hands of the few at the expense of the many. This fuels the dominance of corporations and financiers and increases the risks of monetary over-reach, which introduces the potential for a non-linear sudden and unpredictable explosion of monetary-driven inflation. All of this sets the stage for both monetary and scarcity inflation. Monopolies and cartels are free to exploit their stranglehold on the nation by jacking up prices and reducing quality (while the bought-and-paid-for political class theatrically wrings their hands while skimming millions in campaign contributions). This is rabidly inflationary. Since there are few incentives to expand real-world capacity and production, this sets the stage for scarcities in essentials and non-essentials alike. With Peak Globalization in the rearview mirror, the deflationary forces of globalization are ebbing. The fly in the ointment is speculative bubbles always pop. All the inflation in the system has flowed into excessive speculation, which has inflated unprecedented bubbles across most asset classes. When these all pop, the results are deflationary as the wealth effect reverses and over-leveraged corporations default and/or go bankrupt. I marked up this chart of the S&P 500 about a year ago, and since then the market crashed and then soared to new highs (SPX 3,826). The basic message here is extremes get more extreme until the rocket runs out of fuel--something the consensus now claims is "impossible." The consensus is that asset inflation is unstoppable and forever. History begs to differ. 
If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com. My new book is available! A Hacker's Teleology: Sharing the Wealth of Our Shrinking Planet 20% and 15% discounts (Kindle $7, print $17, audiobook now available $17.46) Read excerpts of the book for free (PDF). The Story Behind the Book and the Introduction. Recent Podcasts: Salon #35: The problem is that nobody knows what "Kuleana" means (58 minutes) My COVID-19 Pandemic Posts My recent books: A Hacker's Teleology: Sharing the Wealth of Our Shrinking Planet (Kindle $8.95, print $20, audiobook $17.46) Read the first section for free (PDF). Will You Be Richer or Poorer?: Profit, Power, and AI in a Traumatized World (Kindle $5, print $10, audiobook) Read the first section for free (PDF). Pathfinding our Destiny: Preventing the Final Fall of Our Democratic Republic ($5 (Kindle), $10 (print), ( audiobook): Read the first section for free (PDF). The Adventures of the Consulting Philosopher: The Disappearance of Drake $1.29 (Kindle), $8.95 (print); read the first chapters for free (PDF) Money and Work Unchained $6.95 (Kindle), $15 (print) Read the first section for free (PDF). Become a $1/month patron of my work via patreon.com. 
Thousands apply for grueling jobs in Amazon warehouses, low-paid serfdom
with only one purpose: increasing the profits of billionaires. Wouldn't it be beneficial if those
people had an alternative source of paid work that served the interests of their family and community?
Many people dismiss my proposed alternative (CLIME) as too idealistic to work in the real world. Nobody says corporations are too idealistic to work in the real world, yet CLIME is a system of community owned and run corporations. The only difference between the two is the purpose and ownership. CLIME: Community Owned Corporations The world has entered an era of profound uncertainty. The Old Normal is gone for good, and the deck is shifting ominously beneath our feet. Now is the moment to ask: what would a fairer, more sustainable system look like? How would it be better for me, humanity and the planet? Even before the global upheavals, our system was failing. Now that it's unraveling, it's time for a new arrangement that's actually sustainable on our resource-depleted planet that doesn't favor wealthy insiders. But those gorging on inequality will never accept reforms that strip away their unearned privileges, and so the only practical way forward is a Hacker's Teleology. What's a Hacker's Teleology? A hack is a workaround in a kludgy, broken system-- a new way of connecting the dots. Teleology means the destination we end up reaching because that's where the dots lead. In this book I connect the dots of my own life experiences to show how a sustainably fair way of organizing human activity would work. In telling my story, I'm also telling our story, because we all share our limited-resources world and the same aspirations for fairness, belonging, getting ahead and a say in our future. So let's get started on an arrangement that actually works for all of us--and our world. Read excerpts of the book for free (PDF). The Story Behind the Book and the Introduction. A Hacker's Teleology: Sharing the Wealth of Our Shrinking Planet 20% and 15% discounts end September 30 (Kindle $7, print $17)
Recent entries: A Few Notes on Deflation/Inflation January 18, 2021 Designed To Fail, Failure Guaranteed January 15, 2021 Is 2021 an Echo of 1641? January 13, 2021 Five "Interesting" Financial Tidbits January 12, 2021 2021: If It Wasn't For Bad Luck, We Wouldn't Have No Luck At All January 11, 2021 The Tyranny Nobody Talks About January 7, 2021 The Coming War on Wealth and the Wealthy January 5, 2021
2020 Was a Snack, 2021 Is the Main Course
January 3, 2021
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