Which Should We Be More Worried About: Deflation or Inflation

Posted: May 28, 2014 12:01 AM

I am constantly being maligned by readers and listeners through e-mails and texts for my longstanding position of deflation vs. inflation. When I watch and listen to Mario Draghi talk about the various strategies to revitalize Europe I am constantly reminded of his greatest fear-DEFLATION.

Janet Yellen and her various associates at the Federal Reserve Board keep saying how they can restrain inflation. In fact, Ben Bernanke, used to say, continually on 60 Minutes, how it was easy to thwart the inflation bug. They all make the mainstream media and the public feel secure in their apparent limitless power to control inflation---WHEN IT HAPPENS.

They very rarely spend much time on the D word, in fact, most of the pundits will take small snippets of what is happening in the economy and say how the lower pricing is positive but look out for inflation in the future. They just can’t bring themselves to admit to anything other than inflation.

Just remember: rising or falling prices are a consequence of inflation or deflation which is the increase or decrease, respectively, of money and credit.

Most recently it was announced by the Energy Information Administration that United States crude-oil inventories are at the highest level since 1931.

The increase in mass transit, due to lower paying or non-existing jobs, and the reduced driving by both the millennials and retirees has resulted in a dramatic decline in gasoline demand.

Economics 101 dictates that an increasing supply and a decreasing demand results in lower prices. The millennials and the retirees are finding both money and credit lacking-DEFLATION, therefore, look for lower gas prices. Those goods that are delivered to your grocery shelves by gasoline driven vehicles should also share in the benefits. Not such a bad thing until the refineries and retailers of all descriptions start their layoffs due to unsold inventory.

Yes, Janet, Ben, and Mario, you can control inflation by simply raising rates! However, you know and I know that your control of deflation is practically impossible.

Since that is the case we will simply have to continue listening to your discussions about that which you can control, regardless of whether it’s somewhere out in the very distant future.

Keep the calls and letters coming folks ‘cause deflation is not going away!