The Deflation Bomb

Deflation

I just finished writing a 3,500-word article on deflation. Yes, that is an exceptionally long article about an issue that most economists fret. You see, the entire financial system operates on debt and employs inflation as a way to keep prices artificially elevated and create scarcity. 

There’s just one problem. As author Jeff Booth suggests, deflation should be the future. In fact, we need to embrace the benefits of deflation. It turns out – the ongoing cycle of debt has created monopolies, inequality, political polarization, and many other structural problems. 

So – when you hear partisans bickering around everything related to economic problems – understand that the system itself is the problem. For decades, deflation has been driven by technology, according to Booth. But the Fed has papered over this deflation. 

U.S. Monetary Policy

Much goes back to the belief that most Americans would not tolerate a nominal decline in wages in the 1990s. I had long believed that the driver of massive economic divides in this nation was a change in fiscal policy around corporate options and compensation.

But my views have shifted since reading the Price of the Tomorrow. Fiscal policy is one way that governments control their population. But monetary policy has been much worse. As technology disrupts labor markets, the government bails out the capital classes, according to Booth, and pays large amounts of unemployment. The failure to simply let nature run its course and natural deflation to persist is a complex, but misunderstood premise. 

The thing that I realized was that the things experiencing the most inflation over the last 40 years are parts of the economy that rely heavily on government policy and significant debt origination and spending. Those are education, housing, and healthcare. 

These three places will be the final frontiers of the future. Companies that can extract labor costs out of these systems and create real deflation will do exceptionally well as publicly traded companies with high margins and lower labor costs. 

We Need Deflation

The key moving forward is our willingness to let deflationary elements take hold. If the cost of things comes down and wages do at the same time, we shouldn’t have a real problem. But the issue is that government economists and academics are continually afraid of deflation because of the 1930s. Therefore, we still operate on 80-year-old policy to try to manage a deflationary trend that is accelerating at an exponential pace. 

Booth argues that these forces will continue to battle well into the future, with structural problems growing worse. My hope is that we can educate people about the benefits of abundance and just how good they have it… Otherwise, we face a long, hard battle.

I’ll talk more about how to invest in this trend this week.

Garrett Baldwin
Garrett Baldwin
Garrett Baldwin joined Godesburg Financial Publishing as Chief U.S. Markets Analyst in early 2021. A Johns Hopkins-trained Economist, he’s worked with hedge funds, venture capital firms, angel investors, and economic advisors to the U.S. government. Baldwin specializes in market anomalies and alternative investments. He’s written extensively on momentum, value, insider buying, and other unique strategies that provide investors that elusive edge.
Garrett Baldwin
Garrett Baldwin
Garrett Baldwin joined Godesburg Financial Publishing as Chief U.S. Markets Analyst in early 2021. A Johns Hopkins-trained Economist, he’s worked with hedge funds, venture capital firms, angel investors, and economic advisors to the U.S. government. Baldwin specializes in market anomalies and alternative investments. He’s written extensively on momentum, value, insider buying, and other unique strategies that provide investors that elusive edge.

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