The Google Machine Inspires a Discussion about Inflation and Deflation

The following is excerpted from the Opening Notes segment in this week’s edition of Notes From the Rabbit Hole, NFTRH 525 (out on Sunday, November 11). It pretty much came out of nowhere after I did a comparison of Google searches for “inflation” and “deflation” while checking Google Trends for another aspect of the report.

The Google Machine Inspires a Discussion about Inflation & Deflation

Switching gears, while I was in the Google machine I decided to compare two terms that are at the heart of our investment management going forward; Inflation and Deflation.

inflation and deflation

It is no surprise that inflation is always much more often searched for because well, they are inflating in one form or another constantly. Whether it is through outrageously experimental monetary policy under the Bernanke Fed or supposedly sound fiscal policy under the Trump administration, it is all designed to raise prices and enrich asset owners, while leveraging debt (which is where the potential for deflation comes in).

Bernanke bailed out the most wealthy interests in finance and then compounded that wealth with ongoing ‘can’t lose’ policy. He virtually outlawed saving by the public with the ZIRP abomination and instituted QE on demand, as needed to make sure those too big to fail and many other debt addled zombie companies out there did not fail.

Trump rails against a Fed that is methodically taking back the Bernanke policy in baby steps. But Trump wants to continue to cut taxes, increase the deficit, and spend in areas he deems suitable. This man is a product of a ‘wealth by leveraged debt’ system and now he is tethering us all to his philosophy. We’re all in.

The point is that prices have risen over the long-term, no matter the type of policy (monetary or fiscal). That’s no big revelation. Without continually rising prices, this system will end because at its core it is an inflationary machine with policymakers unrestrained in their power to continue to attempt inflation after inflation.

Today fiscal reflation is taking hold as corporations are finding pricing power. It is all logical and in keeping with history. Graph by way of the Daily Shot and this post.

But systemic inflation, which is “always and everywhere a monetary phenomenon” (Friedman) is ultimately dependent upon the Federal Reserve and its will to increase money supply. One might argue that current fiscal policy is more organic (than monetary policy) and one might be right… if it were not utterly dependent upon deficit spending.

Today prices are rising while the deficit increases and interest rates rise to compensate. Trump is increasing the deficit (21% in his 1st year of record) against total national debt of $21.4 Trillion and growing. So there is nothing new under the sun in the system of inflate, inflate, inflate… oops, deFLAYshuninflate, inflate, inflate

treasury yields

There is a reason Trump rails against the Fed and its rate hike regime, but the Fed is just doing as the bond market instructs. As noted a few weeks (October 21) ago the Fed is not for you, me or Trump. The Fed is for the Fed and the banking system. The system runs on inflation over the decades. But it also needs to liquidate every so often to reset the game. Personally, I don’t think hyperinflation is in the cards, at least not before the next red line spike in the Google Trends graph above.

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