'I describe the present economic crisis in terms of economic resonance. The economy experiences oscillating money-flows between the commodity market and the bond market. When money flows from the bond market to the commodity market we witness the inflationary phase of the cycle. Inevitably, rising interest rates accompany this phase. At the top of the cycle the money-flow will reverse itself and will go from the commodity market to the bond market. This is the deflationary phase of the long-wave cycle that, no less inevitably, is accompanied by falling interest rates. These huge money-flows are driven by speculation. When the central bank intervenes in the market to control the rise of interest rates, it inadvertently makes prices fall; and when it intervenes to stop prices from falling, it inadvertently makes interest rates rise. The upshot is that the central bank intervention, rather than tempering movements, aggravates them. This is the fundamental flaw of Keynesian economics. At the present junction the Fed is buying bonds to combat deflation. Bond speculators know this and will buy the bonds first, driving down interest rates in the process. The result is more deflation, not less. The Keynes-inspired central bank action is counter-productive. Policymakers are blind and don't see this. They stick to their self-defeating monetary policy. They actually become the quartermaster general of the depression they are trying to avoid. As if cursed by a particular kind of madness, policymakers saddle society with the vampire of risk-free speculation. They turn the constructive energy of stabilizing speculation into a most destructive kind of energy: destabilizing speculation. The problem cannot be cured because bond speculation cannot be eliminated.'

'...these stress tests and new rules will choke off the one aspect of fiat money that actually is positive (within the larger negative context). Not only will people have to deal with the monetary inflation that has already been created, they'll have to deal with it within the parameters of a monetary drought. Having caused a rapidly developing depression, the elites behind the world's damnable central banking system are now busily engineering a situation where further capital will not be available (without punitive interest rates) to any but the biggest corporations. How clever it is, eh? If you want to set up global governance, the first thing you want to do is gain control over money and its issuance. You do this by setting up a global network of central banks. Having created central banking and the mechanism for printing-money-from nothing, you now print a great deal of it. In doing so you set off a series of great booms and busts that culminate in the greatest boom and bust of all – leading (as it did in the 1930s) to what should be labeled a depression. Now, once the depression (or "great recession) is underway, you begin to run from bank to bank like a busy bee. You are, in fact, busily engaged in creating a credit squeeze. Having bankrupted middle classes around the world, you are determined to ensure that they will not be able to get their hands on further funds!'

'If you are a central banker in the destination country, it might be that the flood of carry-trade money could push inflation upwards. What is the central banker or policymaker to do? The ‘hot’ money flooding into their country might be causing an asset-price bubble, or inflation. Something must be done. The problem is this: if interest rates are increased, the incentive for the carry trade is likewise increased – and might even cause the inflow of even more ‘hot’ money. If the central bank targets low interest rates, then there is the possibility that this might end the carry trade, but at the cost of creating an internal stimulus to inflation. The strengthening of the destination country’s currency might, in turn, have a negative effect on the balance of trade and the export sector of the economy. Exports will fall... Despite this, assets in the destination will be going up, while the underlying performance of the economy will be going down (albeit disguised by the inflow of money).'

'The belief that pumping up the money supply through unlimited bond purchases by the central bank will bring about rising prices is a tragic mistake. A higher price level will never be achieved in this way. Bond speculators will have a field day. They would just buy the bonds in any amount. A vicious spiral of falling interest rates is engaged that, like the black hole of zero gravitation, will suck in and gobble up the world economy. -- ...the line between success and failure is hopelessly blurred. If the rate of interest goes down in consequence of Fed action, then: "hooray, we're dead on with targeting inflation. And that's good news". If, on the other hand, the rate of interest goes up, then: "hooray, the economy is turning around. Rates have risen for the very reason we were hoping for: investors are more optimistic about the recovery. It is a good sign." The fact that in the meantime the economy is wiped out, gets lost in the noise of loud self-congratulation.'

Pay-walled. Recommended. -- When a pyramid scheme nears its inevitable end... "...the public insist on being handed the empty bag because they think they're going to make money, they want in on the game, everyone else has been making money, they feel left out so they insist on buying these things at the peak, and they are the ones who lose everything."

'The economy started down a depressionary slide in 2008 and hasn't looked back. It is my thesis that the inflation, deflation debate is flawed because we no longer have reliable price signals. The overwhelming domination of program trading on various exchanges has fundamentally changed the way prices are created and represented in the economy. All 'efficient market' theories are dead. In place of reliable price signals (based on the supply and demand of buying and selling) we have price signals that are generated by computer algorithms... Program traders have a virtually infinite line of credit, pay virtually zero commissions, and are backed by banks on Wall St. with strong political connections who are ready to bail out any losing bets these computers make. In place of an exchange where buyers and sellers transact with each other to their mutual advantage, we now have 'Simflation,' a hologram of fake price signals masking the worst deflationary depression since the 1930's.'

'When the tide is going out, there are regular intervals when water seems to be advancing... Over a period of decades, fiat-money works in a similar manner. Industrial economies are hollowed out by the combination of inflation and progressive taxation. Every recession, more small businesses are lost. Every recession, additional industry flees to safer havens. Because the process is gradual, and because the mainstream media refuses to recognize it, people living within the system may continue to believe the tide is coming in, when it is actually headed in the other direction. Eventually, there comes a tremendous crash that reveals the true nature of the system. People suddenly see how many jobs are gone, how much entrepreneurial energy has been diminished, how much of the beach has been denuded. When this happens, no amount of happy talk about a "service economy" or capitalism's "creative destruction" can compensate for the reality that has been revealed.'

'...bankers will continue to step up in front of the cameras to speak about their fears of "inflation" or "deflation" as if they themselves, and their institutions, are not the cause of it. It is a perfect fear-based meme... So long as central banking is not explained properly, there are only two alternatives: agitate for central bankers to print more money or less. The central banking meme is one of the most important if not THE most important meme of all. In pointing out that the inflation versus deflation argument is disingenuous we are not necessarily concluding that central bankers are entirely aware of the promotion. The beauty of the power-elite system is that it sets parameters and then lets individuals fill in the lacunae. You may wish to be a central banker and pursue that "career" and indeed work within the central banking community without ever deciding that you are merely a promotional shill for more powerful entities.'

'...price deflation is a dominant social theme—a fear-based promotion that is being used, in our opinion, to justify the Draconian cuts that are being called for. ...there is nothing [wrong] with deflation in a free-market environment (it eases the pain). But the EU is anything but free-market oriented and price deflation in such over-leveraged communities is often a recipe for immediate ruin, and people know it. We begin to have a greater degree of certainty, then, that the powers-that-be are using the price deflation bogeyman as a methodology to implement greater control over Europe and also, ultimately, of Britain and the US. ...it is perhaps doubtful that serious price deflation can persist in the kinds of fiat-money environments that pervade the West today. Sooner or later, inflation will become more prominent—or so we believe—and thus we see the promotion of price deflation as something of a frenetic scare tactic for political purposes before price inflation begins to surge.'

'The overall point: "We all need to get on board with paying down debt like any responsible citizen debtor would." Is this so? We believe that suggesting the individual citizen now has a moral calling to live in penury and starvation because of the planned irresponsibility of central banking policies is absurd. We believe it is a kind of dominant social theme, as follows: "Nations have been living beyond their means for decades and it cannot go on without social chaos. Austerity measures will be implemented by the authorities for everyone's good." This meme certainly shoves the blame for the current situation directly onto citizens living in the West's profligate nation states. ...the main argument of deflationists seems to be that the money "goes away" during bankruptcies, etc. But in fact, banks that are damaged by recessionary ruin will almost always receive further monetization by the West's mercantilist central banks... ' -- It's biflation and it's theft.

Black Hole of Zero Interest Theory - '...why is it that the inordinate money creation by the Fed is having no lasting effect on prices? It is because the Fed can create all the money it wants, but it cannot command it to flow uphill. The new money flows downhill where the fun is: to the bond market. Bond speculators are having a field day. Their bets are on the house: if they lose, the losses will be picked up by the public purse. But why does the Fed under-write the losses of the bond speculators? What we see is a gigantic Ponzi scheme. The Treasury issues the bonds by the trillions, and promises huge risk-free profits to the bond speculators in order to induce them to buy. Most speculators believe that the Treasury is not bluffing and they buy. Some may believe that the Fed is falsecarding doubts and they sell. But every time they do they only see foregone profits. What we have here is a rare symbiotic relation between the government and the speculators. The world begs to be fooled.'

'If nobody recognizes a defaulted debt on their balance sheet, does it exist? What does "deflation" mean in such a world? Not much, as it turns out. At least from a monetary perspective, because money is not being destroyed at nearly the rate that would be expected or predicted by the size and rate of the defaults. Trillions in probable and provable losses quietly exist out of sight on the balance sheets of the Federal Reserve and other financial institutions. If they ever come out of hiding and onto the books, I think the deflationists will be proven correct in spades. -- Perversely, when a bank sells a ruined loan 'asset' to the Federal Reserve, it is a double shot of money to the system - the money initially created upon the issuance of the original loan which is still out there in circulation, and a second bolus when the Fed creates money out of thin air to buy the failing 'asset' from the bank.'

'#5. ..all countries which issue the vast majority of debt in their own currency (US, Euro, UK, Switzerland, Japan) will inflate. They will print as much money as they can reasonably get away with. While the economy is in an upswing, this will create a false boom, predicated on asset price increases. #6. As a result there will be a Scylla and Charybdis of inflationary and deflationary forces, which will force the hands of central bankers in adding and withdrawing liquidity. Add in the likely volatility in government spending and taxation and you have the makings of a depression shaped like a series of W’s consisting of short and uneven business cycles. The secular force is the D-process and the deleveraging, so I expect deflation to be the resulting secular trend more than inflation. #7. Needless to say, this kind of volatility will induce a wave of populist sentiment, leading to an unpredictable and violent geopolitical climate and the likelihood of more muscular forms of government.'

Great interview. So right now it's both deflation AND inflation: deflation of credit, inflation of money. Deflationists assume credit loaned always leads to actual production—not so—thus 'disinflation' might be the more accurate term for current credit/debt contradiction/deflation in the U.S. In terms of prices, it's price-deflation where paper-priced goods are priced in gold (since the value of paper money has to deflate against something of real value), and price-inflation where paper-priced goods are priced in devalued paper. The bottom line: everyday consumer goods will rise in price whilst the real-terms fall in non-consumer goods prices will be masked by a generalised rise of all prices in nominal terms (house prices will rise and rise but be worth less and less) thus 'wealth' is being eroded/stolen. -- See Biflation (A simultaneous price-inflation for consumer goods and price-deflation for non-consumer goods): http://en.wikipedia.org/wiki/Biflation

Comment: Scaramanga: 'Schiff argued that prices will indeed go down in a variety of asset classes as measured in gold i.e. there will be widespread deflation but against gold only—and not against the US dollar. So when you talk about *prices* it must be prices in gold to make sense to Schiff. In his view that is the true form of deflation. I suppose he would call it "real deflation" as he seems gold-oriented on everything. So there is common ground between Schiff and Mish if we are talking about prices in gold: then they are both deflationists. But as measured in dollars...then there is the parting of ways. A fiat currency destroys our ability to gauge financial consistency, which is exactly the point.' -- Points of disagreement (from this article and others): Mish thinks that US creditors have full faith in the dollar. Schiff doesn't and thinks that if confidence collapses government *may* force the Fed to inflate its out of a debt worsened by raised rates resulting in hyperinflation.

"The US will suffer both higher monetary inflation and worse economic deterioration, not one or the other, but BOTH, and with steadily increasing intensity. ...the staggering direction of monetary aid for rescues of dead banks, for nationalization of dead corporations, and for stimulus to an insolvent nation guarantee more damage. The huge monetary growth guarantees that the asset prices will continue to fall, and that the great tempest will grow in magnitude and danger. Why? Because bad money drives out good money... It acts like a cancer, one that has essentially destroyed the fundamental foundation of the nation. This extremely important point will lead to the ultimate downfall of the Untied States, as their inflation will destroy too much capital in determined yet mindless application. -- To clarify most clouds of confusion, it is best to refer to ‘Falling Asset Prices’ instead of ‘Deflation’ in almost all cases."

"The retreat of the shadow lenders has created a credit freeze globally; and when credit shrinks, the money supply shrinks with it. That means there is insufficient money to buy goods, so workers get laid off and factories get shut down, perpetuating a vicious spiral of economic collapse and depression. To reverse that cycle, credit needs to be restored; and when the banks can’t do it, the Fed needs to step in and start “monetizing” debt. So why don’t Fed officials just say that is what they are up to and put our minds at ease? Probably because they can’t without exposing the whole banking game. The curtain would be thrown back and we the people would know that our money system is sleight of hand. The banks never had all that money they supposedly lent to us. We’ve been paying interest for something they created out of thin air! Indeed, their credit money is less substantial than air, which at least has some molecules bouncing around in it. Bank credit exists only in cyberspace."

"Here is the central problem for the Bank of England. The only way to justify QE is through the fear of deflation, but the only measure that is showing deflation is the RPI. The bank's remit does not extend to RPI so that it can not use the RPI as an excuse to print money. As such, they subtly conflated the measures, planted the idea of deflation in the mind of the media, and 'lo and behold', deflation has appeared. It now looks like, post hoc, that the Bank of England can justify the deflationary scare. Through smoke and mirrors, the media have accepted the deflationary argument and continue to accept QE. However, if the media were paying attention, they would note that the deflation is on RPI and, in part, due to the very policies that the Bank of England is actually pursuing. -- QE is simply a way of printing money to buy bonds and support the bond market. The policy is therefore really about printing money to support profligate government spending through printing money."

'Deflation or Hyperinflation. The short answer is both. The prerequisite for hyperinflation is a deflationary depression. There is a major misconception among many economist and financial experts that the deflationary scenario we are in now will lead to a deflationary collapse. But this is a fallacy. The current deflation is the necessary initial stage of hyperinflation. We ar currently experiencing massive deflationary pressures. The total global losses in stockmarkets, real estate and commodities are estimated at $85-$95 trillion. This is what governments are fighting. The financial system has issued debt instruments and derivatives of $100′ s of trillions, linked to these assets. This is why the financial system is bankrupt and this is why the amounts printed by governments so far are a mere drop in the ocean. But we haven’t seen the end of the asset deflation yet. We are likely to see worldwide asset losses of at least $130-$170 trillion before this is over.' -- Biflation.

Simultaneous price-inflation for consumer goods and price-deflation for non-consumer goods caused by a generalised monetary inflation.