Deflation is the Calm Before the Inflationary Storm – Got Gold?

We are currently about one year into a two year grace period before people will begin to realize that their money isn’t ‘real’ but simply ‘magic’ money. In the meantime the ‘smart’ money is buying up hard assets like gold, knowing that it is the only form of money that isn’t simultaneously someone else’s liability and, unlike ‘magic’ money, can’t be created out of thin air.

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Lorimer Wilson, editor of www.FinancialArticleSummariesToday.com, provides below further reformatted and edited [..] excerpts from Tim McMahon’s (www.inflationdata.com) original article* for the sake of clarity and brevity to ensure a fast and easy read. McMahon goes on to say:

Banks Prefer Inflation

You would think a banker wouldn’t like inflation because he loans out money and gets back payments that are worth less and less. In fact, though, the price we pay for a loan takes that into account i.e. the banker builds a cushion into the interest rates to cover the expected inflation. As such, what bothers a banker is rapidly increasing inflation that he hasn’t built into his profit margin.

A little inflation is good for a banker’s business, however. It creates ‘easy’ money and a mindset among the people that they are getting something for nothing from the bankers by paying with less valuable dollars so they are more likely to take out loans and spend the money before it depreciates and buys less.

That being the case you would think banks would like deflation because they loan out money and get paid back with increasingly valuable dollars but, once again, the bankers disagree. When money is scarce and getting more valuable several factors conspire against banks:

1. people are less likely to borrow when they can defer purchases and things will be cheaper in a month or two (or twelve).

2. people defer purchases because they fear the economy is getting worse and they may not have a job next month or their hours have been cut.

3. the banks themselves fear the same exact forces so they increase their lending requirements and basically will only loan money to people who don’t need it (or want it).

Deflation is Bad for Banks

This brings us to why the news media fears deflation so much. It isn’t because they fear falling prices, or that it will hurt the common man, it is because it is bad for banks, i.e. they can’t loan money. So the media has to stir up fear of deflation in the minds of people so the government can crank up the printing presses and bail out the banks.

Once the printing presses and the bailouts get going, massive sums of money can be transferred to the bankers so they can get their $11 Billion dollar bonuses again – and once again all is right with the world. Or is it? Where are all these Billions coming from? Not taxes… it must be magic, the money is created out of thin air, with the stroke of a pen the money is there.

Unfortunately, magic has a price. As these magic dollars are spent the supply of money grows and as the total supply of dollars grows, each individual dollar becomes worth less and less. The first recipients think it is an ordinary dollar and accept it at face value, but over time, people begin to realize that these aren’t ordinary dollars, they are ‘magic’ dollars which will become worth less and less, until they are totally worthless.

That is why inflation is often called the stealth tax. It secretly steals your savings and transfers your money to those at the head of the line who first got the ‘magic’ money. Who is that? It’s the government and the banks. Unfortunately, the volume control on the ‘magic’ money machine has been cranked up to full blast and the machine is cranking out Trillions of dollars – more than has ever been dreamed of before – and the day the piper will be paid is rapidly approaching.

We aren’t fooled by the current deflationary numbers. We know it is simply the calm before the storm. Those Trillions of dollars are like little hurricane seeds beginning to swirl off the coast, gaining speed and force until they mature into the monetary equivalent of Hurricane Katrina.

*http://inflationdata.com/inflation/Inflation_Articles/The_calm_before_the_Inflation_Storm.asp (Subscribe to our FREE monthly E-Zine and we will keep you updated on current inflationary trends.)

Editor’s Note:
– The above article consists of reformatted edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered.
– Permission to reprint in whole or in part is gladly granted, provided full credit is given