The Deflation Myth

By: Mike_Stathis

This is another myth I want to clear up. For some strange reason, economists, and those who actually give credence to what they say seem to think that a single period eighty years ago set a precedent cast in stone for what to expect from this depression. As a result, the masters of propaganda continue to insist that you cannot have a depression without deflation. Apparently, these “experts” have never heard of data points. You cannot expect to make credible conclusions based on one period. You need several periods at minimum in order to transpose similar conclusions.

These are the same geniuses that have attempted to compare apples to oranges when stating their very weak case that a depression is not here. It's currently not a full-blown depression, but it's the early stages. These are also the same savants that denied the presence of a recession all throughout 2008 because they were looking at manipulated economic data. No doubt, these “experts” will change their tune in a few years when even the manipulated economic data can no longer hide the truth. Americans will have wished for warning signs in advance, but they aren't going to get them if they listen to the mainstream media because they focus on interviewing the economists; you know, the Washington and Wall Street hacks.

So I'll be crystal clear. All of this talk of current deflation is bologna. When you see people writing about deflation, they're basing their conclusions on unrevealing data. Those who speak of deflation are only defining what the banks are doing. The banks are holding their cash not because they have to, but because they can. The big banks have been given a blank check from the Treasury so they can make as many loans as they want. The problem is that they want to avoid nationalization. The more money they “borrow” from the Fed and U.S. Treasury, the higher the chance they will be nationalized. This explains why there is deflation, as given ONLY by the money supply data. In short, it's not a real deflation. Looking at the money supply (even if we could trust the numbers) doesn't tell us much about the current levels of inflation or deflation because it's a lagging indicator. The best way to determine the level of deflation or inflation is to look at the relative price change of a basket of good, preferably basic necessities.

As well, these same “experts” will go to their grave insisting that it's absolutely impossible to have inflation during a depression. Wrong again. The fact is that we will have a depression characterized largely by inflation. I first made this forecast in my 2006 book, “ America 's Financial Apocalypse: How to Profit from the Next Great Depression.” Most of the public didn't have a chance to read my warnings because the mainstream media chose to censor me. But quite a few hedge fund managers patched into my research. And they've done exceptionally well.

Deflation might bear its head at a later stage as it has recently. But this depression will be characterized primarily by inflation. You might be thinking this doesn't make sense. If so, then you aren't familiar with inflation trends. We are going to see at minimum, inflation in basic goods and services, like oil, food, and healthcare. Combined with double-digit unemployment, a very high level of underemployment, muted wage growth will work in unison to squeeze consumers. Finally, 80 million baby boomers will have little disposable income remaining to fuel the economy. It will be a silent depression.

Why will it be silent? Because the daily events that have caused panic will come to an end in a few years. Meanwhile, the massive taxpayer-funded bailout and stimulus funds will kick in, making Americans think that a recovery is in place. But it will all be an illusion much like that created prior to 2007. It will be a much different depression than the first one. And you should expect it to be different. After all, America is very different, as is the rest of the world.

For real people like you and me, inflation is alive and well, although it's tapered off since the commodities correction. Ask yourself if food, healthcare, higher education and other expenses have gone down. I don't know where you live, but for me they sure haven't. And you shouldn't get too comfortable with $2 gas prices because by my forecasts, oil is headed much higher in a few years. That said, you should also know that I cannot see hyperinflation coming in our lifetime. We will have a period of very high inflation, perhaps worse than in the late ‘70s, but it won't be hyperinflation. 

Don't Bet on Hyperinflation!

The denials by economists and others is designed to keep you in the dark, hoping you'll gain confidence in the economy; hoping you'll go out and spend more of what you don't have to create more meaningless data. The only problem is that this economic apocalypse is not one based on lack of confidence so much as it is on fundamental problems denied for many years by politicians. It would be in the best interests of the nation to admit the full magnitude of the problems now, so people can take the necessary steps to shield themselves from further devastation. But that just isn't the way things are done in America .

I want to encourage all who seek the truth and valuable guidance to follow me to my new site www.avaresearch.com (coming in a few days). You won't see me pitching gold or investments to you like others. You will continue to receive nothing but unbiased top-tier insight, education and commentaries.

By Mike Stathis
mike@apexva.com

Copyright © 2009. All Rights Reserved. Mike Stathis.

Mike Stathis is the Managing Principal of Apex Venture Advisors , a business and investment intelligence firm serving the needs of venture firms, corporations and hedge funds on a variety of projects. Mike's work in the private markets includes valuation analysis, deal structuring, and business strategy. In the public markets he has assisted hedge funds with investment strategy, valuation analysis, market forecasting, risk management, and distressed securities analysis. Prior to Apex Advisors, Mike worked at UBS and Bear Stearns, focusing on asset management and merchant banking.

The accuracy of his predictions and insights detailed in the 2006 release of America's Financial Apocalypse and Cashing in on the Real Estate Bubble have positioned him as one of America's most insightful and creative financial minds. These books serve as proof that he remains well ahead of the curve, as he continues to position his clients with a unique competitive advantage. His first book, The Startup Company Bible for Entrepreneurs has become required reading for high-tech entrepreneurs, and is used in several business schools as a required text for completion of the MBA program.

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