Jubilee Prosperity

The Big Squeeze.

http://www.shadowstats.com/alternate_data/inflation-charts

While the common man sees inflation and buys copper, gold and silver, the rich and powerful Big4 see deflation and sell them net short.

No wonder Fed Chair Bernanke and the Board of Governors of the Federal Reserve see deflation and want to keep short term rates low, while the man in the street faces inflation.

This combination of a higher cost of living with lower asset prices is not stagflation, but more accurately, stagdeflation.

Primary asset trends, not liquidity burps, are the determining factor for long-term inflation and deflation of economies and markets.

Real money supply growth year-over-year is not inflating, but deflating.

In fact, real M-3 growth went negative, hardly inflationary:

http://www.shadowstats.com/alternate_data/money-supply-charts

It is a simple empirical fact implosive credit destruction cascades faster than the Fed and Treasury can create fiat money and government spending persuading people to get deeper into debt with cash for clunkers, mortgage modifications or new home tax credits.

Perhaps this is why PPIP, TARP, TELF and budget busting pork barrel earmarks did not work. The claim that they avoided a worse collapse may be premature or wrongheaded. Schumpeter argued for creative cycles of destruction to create greater growth.

We have had anything but greater growth, as this so-called recovery is slower than any for a century, limited to bureaucrats in DC or corporate bank bonus babies on Wall Street.

More are realizing government cannot create wealth, only transfer it.

Of late, we have the illusion of recovery with dark pools, front-running, gambling, high frequency trading, monetization of anything that does not move (or moves downward) and Plunge Protection Teams.

When we punish success and reward failure, we become an Empire of losers.

Thus we find the corollary of Mr Keynes’ axiom timelier:

By a continuing process of deflation, banks can confiscate, secretly and unobserved, an important part of the wealth of their citizens…. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.

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This entry was posted on Thursday, January 21st, 2010 at 6:18 pm and is filed under Market Psychology. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.