Phillip Tilley

Deflation in a flat economy

October 11, 2009 |  4 comments
Image Credit: sxc.hu The dictionary defines deflation as a contraction in the volume of available money or credit that results in a decline of the general price level. Deflation occurs when the inflation rate falls below zero. This means the price of goods and services goes down and any currency you have will buy more. That is the good side of the coin.

Currently the U.S. economy is in a state of deflation. For two years in a row the GDP, or Gross Domestic Product, the total of all goods and services produced in the U.S. has fallen. Statistics from the “Financial Forecast Center” do not predict the GDP to stop falling until April of 2010. Median income fell last year from $52,163 to the 1997 level of $50,303. That is a twelve year loss in household income that deflated in one year.

This is one factor that shows we are in the “Millennial Depression”. Prices are “depressed” or deflated from what they were and prices are depressed because of a fall in demand. In other words people could not afford to buy items at the old price, so the price is lowered in hopes that people will be able to afford them now.

Housing is a good example of deflation. A house that cost $400,000 two years ago can now be bought for $250,000 or less assuming you can get a loan. Gas that was $4 a gallon is now $2.85 a gallon. A computer that would have cost $1,500 can be bought for $499.

The bad side of deflation is that the lack of demand for goods and services leads to job losses or full time workers being cut back to part time hours. That means the job market is also deflated and a man with no job or working fewer hours cannot afford the things they would have bought even at the deflated prices.

Applications for Social Security are up 23% as older Americans with few job prospects have chosen retirement. Social Security will pay out more in benefits that it collects in taxes for the first time in thirty years. Fewer people working means fewer people paying taxes, so even tax revenue is deflated.

Deflated incomes mean more people are unable to pay their mortgage on their $400,000 house. Banks foreclose on these people and sell the house for $200,000 to someone else to get the toxic asset off their books. Of course the people that buy the house will lose their job and have it foreclosed on so it can again be resold to someone else for less. This is a deflationary spiral. It is cause and effect where the effect causes the cause.

Deflation is caused when the supply of money goes down. Since we do not have money, [we use Federal Reserve Note debt currency] there is no money supply. We have a debt or credit based economy so our deflation is caused by a reduction in available credit, or in other words less lending by banks.

But how can there be a shortage of currency since the government gave 1.7 trillion Federal Reserve Note dollars to the banks? Deflation occurs when the available currency per person falls. This means currency is scarce. Since debt currency is created when banks extend credit to individuals and businesses via the loan process, it is the banks unwillingness to make loans that has caused currency to be scarce. It is scarce to anyone that is not a top executive of a bank. Banks took the funding from the Government and will not lend any of it out.

50% of people who could have gotten a loan a year ago cannot get one now. Even with a good credit score loans, or credit, which drives our economy, are hard to come by. The contraction of credit has caused some businesses go out of business and created more job losses.

Most deflationary periods in American history have lasted ten to twelve years. Hindsight is 2020! Things will get worse before they get worse. Wake up people, the money matrix has you.

Phillip Tilley is author of The Money Matrix of the New World Order and other articles.[!gad]The dictionary defines deflation as a contraction in the volume of available money or credit that results in a decline of the general price level. Deflation occurs when the inflation rate falls below zero. This means the price of goods and services goes down and any currency you have will buy more. That is the good side of the coin.

Currently the U.S. economy is in a state of deflation. For two years in a row the GDP, or Gross Domestic Product, the total of all goods and services produced in the U.S. has fallen. Statistics from the “Financial Forecast Center” do not predict the GDP to stop falling until April of 2010. Median income fell last year from $52,163 to the 1997 level of $50,303. That is a twelve year loss in household income that deflated in one year.

This is one factor that shows we are in the “Millennial Depression”. Prices are “depressed” or deflated from what they were and prices are depressed because of a fall in demand. In other words people could not afford to buy items at the old price, so the price is lowered in hopes that people will be able to afford them now.

Housing is a good example of deflation. A house that cost $400,000 two years ago can now be bought for $250,000 or less assuming you can get a loan. Gas that was $4 a gallon is now $2.85 a gallon. A computer that would have cost $1,500 can be bought for $499.

The bad side of deflation is that the lack of demand for goods and services leads to job losses or full time workers being cut back to part time hours. That means the job market is also deflated and a man with no job or working fewer hours cannot afford the things they would have bought even at the deflated prices.

Applications for Social Security are up 23% as older Americans with few job prospects have chosen retirement. Social Security will pay out more in benefits that it collects in taxes for the first time in thirty years. Fewer people working means fewer people paying taxes, so even tax revenue is deflated.

Deflated incomes mean more people are unable to pay their mortgage on their $400,000 house. Banks foreclose on these people and sell the house for $200,000 to someone else to get the toxic asset off their books. Of course the people that buy the house will lose their job and have it foreclosed on so it can again be resold to someone else for less. This is a deflationary spiral. It is cause and effect where the effect causes the cause.

Deflation is caused when the supply of money goes down. Since we do not have money, [we use Federal Reserve Note debt currency] there is no money supply. We have a debt or credit based economy so our deflation is caused by a reduction in available credit, or in other words less lending by banks.

But how can there be a shortage of currency since the government gave 1.7 trillion Federal Reserve Note dollars to the banks? Deflation occurs when the available currency per person falls. This means currency is scarce. Since debt currency is created when banks extend credit to individuals and businesses via the loan process, it is the banks unwillingness to make loans that has caused currency to be scarce. It is scarce to anyone that is not a top executive of a bank. Banks took the funding from the Government and will not lend any of it out.

50% of people who could have gotten a loan a year ago cannot get one now. Even with a good credit score loans, or credit, which drives our economy, are hard to come by. The contraction of credit has caused some businesses go out of business and created more job losses.

Most deflationary periods in American history have lasted ten to twelve years. Hindsight is 2020! Things will get worse before they get worse. Wake up people, the money matrix has you.

Phillip Tilley is author of The Money Matrix of the New World Order and other articles. Comments (4)

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