Deflation, Hyperinflation, and You; Work In Progress
Disclaimer
This is a work in progress series for a much longer form article I am writing (perhaps a bit academic in nature). I am working out several key concepts, making the arguments to myself back and forth, and teasing the waters hoping for some conflicting data (open-market criticism). To this end, I present a contrarian economic concept that might help in the coming times:
Deflation; the Myth, the legend
Deflation isn't real. Defining deflation as the cost of living decreasing, and utilizing CPI, a metric for the cost of living, deflation is entirely and unanimously thrown away. In fact, the only period where cost of living stands relatively still in modern times is post-2008 crash when real estate as a whole blew up, significantly reducing the CPI, while the inflation on all other goods and services increased dramatically.
The M1 money supply is the amount of money within cash and savings accounts, and the amount of cash in circulation. I consider this the workers economy. Small savings accounts are the most likely to get raided in the event of an economic incident, while cash and credit accounts are fluid and change hands constantly, this concept being the velocity of money.
The M2 money supply is the amount of money within M1 + savings accounts under 100k + money markets (active investments). I call this the working economy as a lot of small businesses get lumped in, as well as the working capital of larger corporations.
The M3 money supply is all of the money. Every notational of value within the confines of the economy of the United States.
The CPI and M1 stay fairly close to each other in olden times of more conservative economic policy. By limiting the growth of the system, you limit the ability for entities to amass at the boundaries. This is to say, that by preventing dramatic growth, the prices of everything can stay relatively the same. Salaries not increasing is ok, because nothing is getting more expensive, or it is but very slowly. Thus, as society develops, maybe a little more slowly due to decreased economic rewards, it should develop equally as the economy has more time to diversify and find a way to equalize salaries. Economic theories used in the earlier 1900s were ones of order; by bringing slow growth and a steady hand, growth can be spread equally and fairly according to rank and file.
This wasn't just theory, it was a necessity. Every other country had some ability to economically limit the other, even at the height of the British Empire, it was not above it's debt collectors. As the world was forced off the gold standard, so was it, too, forced off any ability to financially normalize among parties. When the only ability to argue about relative currency value is war, and it is absolutely clear that no one really wins that war, whatever little economic arguments there are, become meaningless. The world economy is the members' economies, and those members' economies rely on the concept that there will never be a debt collection call and everyone can continue to print assets following a specific set of rules.
Post-2008, the only solution the Federal Reserve saw forward was to continue to print money, because it has no other abilities. The Federal Reserve is owned by the banks it is supposed to regulate, it is inherently self-interested and corrupt, because any entity that profits off of it's own labours may never make an unbiased decision against it. Thus, we saw, for the first time in 44 years of expansive monetary policy directed at abroad (perpetuating unfettered rooting of American companies, and America's economy, into every developing nation), come home to the workers economy. Real economists could tell you why, but this analyst believes it's just a natural spring from the greater M3 & M2 economies forced by the collapse of many international trade deals, allowing/forcing more at-home growth to develop.
The massive jump in the M1/M2/M3 in 2020 is more than just government checks to people, it was massive and secretive government checks to the banks, and massive non-secretive government checks to Blackrock. Given that the cost of living has closely followed the rate of M2, and that the M1 money supply has increased at a hyperinflationary rate, it is of sound hypothesis to consider that the cost of living too, will undergo hyperinflation.
While there remains sector pressures for independent cases of deflation, there is no reduction in the total cost of living, and that deflation driven by worker persecution or technological innovation is a transfer in product costs to technological costs, and that reductions in the cost of specific elements of the cost of living; shelter, food, health, transportation costs consecutively increase in cost so too as does the total monetary supply as each element of the underlying formula of total economic cost fights for some new majority of growth.
Deflation requires one simple principle to be possible; the cost of living decreases. While more dollars can get printed, and the USD FOREX (how much the dollar is in comparison to other currencies) can increase, the individual's dollars do not increase and the demand for more raises commensurate against this. In essence, stronger dollar means a systematic increase in the cost of goods and the overall cost of life. Printing money increases the overall pool of money, creating demand by those feeding off that pool to amass more of it, systematically increasing the cost of life. The only thing that decreases the cost of living is government regulations specifically inhibiting the price increase of specific forward facing assets such as housing, food, internet, power, water, transportation, physical healthcare, and goods + services providing mental healthcare.
An alternative is to inflate the money pool at a rate faster than the "natural" growth of the costs. This policy might look like a universal basic income, more social welfare benefits, some form of money sent directly to the people. However, the hidden cost becomes the cost of labour. As the demands of life decrease such that the general willingness to do hard labour and tasks decreases, the need to increase the value package given to the workers. As this cycle of stimulus --> labour squeeze --> Increased pay and worker rights --> increased cost of living --> stimulus --> continues on and on, this author's theory of Perpetual Cyclical Doom is reinforced. In terms of Elliot Waves, this has to be 3? 1990s saw a significant rise in worker pay and rights, 2000s crash was wave 2 with the beginnings of hyperinflation, and now we are at wave 3?
Disclaimer
Thanks for reading! This is sure to be a continuing cycle of irregular publishing. This author spends a significant amount of time trying to define and shape major issues into something that flows well into an easy explanation. Twitter is a great way to semi-organize these as little thought blurbs, but this is a great way to get a solid chapter written and seeing how it works.
I apologize for forcing y'all to be my test subjects, but if I am going to make y'all rich by teaching very surgical skills in company and stock research, I am going to spend time and effort to give y'all some skills to look at the bigger picture and decide how you want to fit in it.
This is a work in progress series for a much longer form article I am writing (perhaps a bit academic in nature). I am working out several key concepts, making the arguments to myself back and forth, and teasing the waters hoping for some conflicting data (open-market criticism). To this end, I present a contrarian economic concept that might help in the coming times:
Deflation; the Myth, the legend
Deflation isn't real. Defining deflation as the cost of living decreasing, and utilizing CPI, a metric for the cost of living, deflation is entirely and unanimously thrown away. In fact, the only period where cost of living stands relatively still in modern times is post-2008 crash when real estate as a whole blew up, significantly reducing the CPI, while the inflation on all other goods and services increased dramatically.
The M1 money supply is the amount of money within cash and savings accounts, and the amount of cash in circulation. I consider this the workers economy. Small savings accounts are the most likely to get raided in the event of an economic incident, while cash and credit accounts are fluid and change hands constantly, this concept being the velocity of money.
The M2 money supply is the amount of money within M1 + savings accounts under 100k + money markets (active investments). I call this the working economy as a lot of small businesses get lumped in, as well as the working capital of larger corporations.
The M3 money supply is all of the money. Every notational of value within the confines of the economy of the United States.
The CPI and M1 stay fairly close to each other in olden times of more conservative economic policy. By limiting the growth of the system, you limit the ability for entities to amass at the boundaries. This is to say, that by preventing dramatic growth, the prices of everything can stay relatively the same. Salaries not increasing is ok, because nothing is getting more expensive, or it is but very slowly. Thus, as society develops, maybe a little more slowly due to decreased economic rewards, it should develop equally as the economy has more time to diversify and find a way to equalize salaries. Economic theories used in the earlier 1900s were ones of order; by bringing slow growth and a steady hand, growth can be spread equally and fairly according to rank and file.
This wasn't just theory, it was a necessity. Every other country had some ability to economically limit the other, even at the height of the British Empire, it was not above it's debt collectors. As the world was forced off the gold standard, so was it, too, forced off any ability to financially normalize among parties. When the only ability to argue about relative currency value is war, and it is absolutely clear that no one really wins that war, whatever little economic arguments there are, become meaningless. The world economy is the members' economies, and those members' economies rely on the concept that there will never be a debt collection call and everyone can continue to print assets following a specific set of rules.
Post-2008, the only solution the Federal Reserve saw forward was to continue to print money, because it has no other abilities. The Federal Reserve is owned by the banks it is supposed to regulate, it is inherently self-interested and corrupt, because any entity that profits off of it's own labours may never make an unbiased decision against it. Thus, we saw, for the first time in 44 years of expansive monetary policy directed at abroad (perpetuating unfettered rooting of American companies, and America's economy, into every developing nation), come home to the workers economy. Real economists could tell you why, but this analyst believes it's just a natural spring from the greater M3 & M2 economies forced by the collapse of many international trade deals, allowing/forcing more at-home growth to develop.
The massive jump in the M1/M2/M3 in 2020 is more than just government checks to people, it was massive and secretive government checks to the banks, and massive non-secretive government checks to Blackrock. Given that the cost of living has closely followed the rate of M2, and that the M1 money supply has increased at a hyperinflationary rate, it is of sound hypothesis to consider that the cost of living too, will undergo hyperinflation.
While there remains sector pressures for independent cases of deflation, there is no reduction in the total cost of living, and that deflation driven by worker persecution or technological innovation is a transfer in product costs to technological costs, and that reductions in the cost of specific elements of the cost of living; shelter, food, health, transportation costs consecutively increase in cost so too as does the total monetary supply as each element of the underlying formula of total economic cost fights for some new majority of growth.
Deflation requires one simple principle to be possible; the cost of living decreases. While more dollars can get printed, and the USD FOREX (how much the dollar is in comparison to other currencies) can increase, the individual's dollars do not increase and the demand for more raises commensurate against this. In essence, stronger dollar means a systematic increase in the cost of goods and the overall cost of life. Printing money increases the overall pool of money, creating demand by those feeding off that pool to amass more of it, systematically increasing the cost of life. The only thing that decreases the cost of living is government regulations specifically inhibiting the price increase of specific forward facing assets such as housing, food, internet, power, water, transportation, physical healthcare, and goods + services providing mental healthcare.
An alternative is to inflate the money pool at a rate faster than the "natural" growth of the costs. This policy might look like a universal basic income, more social welfare benefits, some form of money sent directly to the people. However, the hidden cost becomes the cost of labour. As the demands of life decrease such that the general willingness to do hard labour and tasks decreases, the need to increase the value package given to the workers. As this cycle of stimulus --> labour squeeze --> Increased pay and worker rights --> increased cost of living --> stimulus --> continues on and on, this author's theory of Perpetual Cyclical Doom is reinforced. In terms of Elliot Waves, this has to be 3? 1990s saw a significant rise in worker pay and rights, 2000s crash was wave 2 with the beginnings of hyperinflation, and now we are at wave 3?
Disclaimer
Thanks for reading! This is sure to be a continuing cycle of irregular publishing. This author spends a significant amount of time trying to define and shape major issues into something that flows well into an easy explanation. Twitter is a great way to semi-organize these as little thought blurbs, but this is a great way to get a solid chapter written and seeing how it works.
I apologize for forcing y'all to be my test subjects, but if I am going to make y'all rich by teaching very surgical skills in company and stock research, I am going to spend time and effort to give y'all some skills to look at the bigger picture and decide how you want to fit in it.
