The Political Economy of Deflation

The deflationary downturn has begun. We are now entering the later phase of the financial ponzi scheme.  The Fed has now hinted at re-starting monetary easing.

Why are we at this crisis point?  That will be the subject of this short article.

ALL MONEY COMES FROM DEBT.  What this means is that in order for governments, businesses, and people to have the liquidity needed to survive and function, they must agree to sign over a claim on their assets to banks.  So as the banking system inflates over time by passing out credit, everyone feels good with more digits in their accounts.  The financial system is effectively gathering claims on all the assets in the economy for its private capital holders. As long as things are inflating, everything is fine.

But this system effectively transfers everyone else’s assets to the balance sheet of the capital holders (behind the banks) once deflation sets in.

This is what is happening now. The global banking system has a claim on most assets in the world.  Once the system has gathered all the claims it wants, primary capital stocks are removed, leading to the next phase of deflation and a transfer of assets from the people to the banks.  In this transfer process, the people’s equity will be destroyed. 

This is not some political rhetoric, but based on the math and accounting of the banking system. The current money system is simply a mechanism to transfer assets/equity from the balance sheets of the many to the balance sheets of the few.

A financial crisis, often reveal who is really at the top of the political economy, as we see the distinction between who faces market risks and who does not.

The banks or more accurately -the financial interests behind them-- own the media--it is that simple, and this is not a political statement, it is a statement of fact.  The central cause of this crisis is the money system, and it has not been discussed in any major Television, radio or Newspaper.  Only in the blog world does one see any discussion of the real issues. 

The large banks in the US are merely intermediaries, the real power lies with the capital holders who work through the banks. These capital holders learned a long time ago to hide as being visible would reveal the true nature of the game.

What we are told is the Political structure:

                                                    Government

                                                    Corporations
 
                                                        Banks

                                                        Media

                                                         Public

Is in fact largely an illusion:

A more accurate Political structure would be:

                                                            Banks

                                                         Government

                                                         Corporations

                                                             Media

                                                             Public

A realistic look at the political economy forces us to re-examine the current state of affairs, and the inherent risks involved. 

In a deflationary environment, all of the claims on assets are called in, this results in wealth transfer of truly massive proportions. 

At a personal level, it is best to avoid or minimize debts, as the likely-hood of economic problems ahead greatly increase. Cheap credit can become a millstone, especially if you loose your income. Mathematically positive interest rates become prohibitive in a deflation.

Deflations also provide opportunities, but primarily to those who have access to capital.