Inflation is always and everywhere a monetary phenomena caused by an increase in the money supply, the greater the increase, the greater the inflation. If the money supply expands with sufficient rapidity, inflation becomes hyperinflation and paper money loses all value.

CHART #1: GROWTH OF THE US MONEY SUPPLY 1970-2015

SLOWMODERATE FAST

THE GREAT MODERATION i.e. THE GREAT DELUSION

What you don’t know explains what you don’t understand

In 1971, when the US ended the convertibility of the US dollar to gold, the only limit on the bankers’ ability to print money ad infinitum—monetary gold reserves—was removed. This led to an immediate spike in inflation ending in an inflationary surge—from 3.3% in 1971 to 14.4% in 1980, a 436% increase. Economists called it the Great Inflation.

Paul Volker, who along with Milton Friedman advised Nixon to cut the ties between the US dollar and gold in 1971, was forced as Fed chairman to end the inflationary surge by raising interest rates to a draconian 21.5 %, in 1980.

After Volker’s deflationary interest rate hike, inflation would not again be an issue despite the still expanding money supply. This anomalous absence of inflation would give rise to the erroneous conclusion that the Fed had somehow engineered a monetary miracle, a never-before-seen phenomena where continuing money growth did not lead to inflation but to a period of relative stability that economists called the Great Moderation.

The Great Moderation from the mid-1980s to 2007 was a welcome period of relative calm after the volatility of the Great Inflation. Under the chairmanships of Volcker (ending in 1987), Greenspan (1987-2006) and Bernanke (starting in 2006), inflation was low and relatively stable, while the period contained the longest economic expansion since World War II. Looking back, economists may differ on what roles were played by the different factors in contributing to the Great Moderation, but one thing is sure: Better monetary policy was key.

‘The Great Moderation’ was, in fact, merely ‘The Great Delusion’. The absence of inflation was not due to “better monetary policy”, but to a series of cataclysmic deflationary events i.e. Volker’s 21.5% interest rates followed by the collapse of massive speculative bubbles which unleashed powerful deflationary forces offsetting the inflationary rise in prices that would have otherwise occurred with excessive money printing.

In 1971, global monetary aggregates, MO, totaled $8 billion; by January 2016, global MO totaled $80.9 trillion, an astounding increase of 1,000,000 %. Such an exponential growth of the global money supply would have either ended in extreme inflation or hyperinflation were it not for powerful contravening deflationary forces.

After Volker’s 21.5% deflationary interest rates in 1980, the next major deflationary event was the bursting of the Japanese stock bubble on December 31, 1989. The Japanese Nikkei fell from a high of 38,957 down to 7,607; its collapse awakening deflationary forces not seen since 1929 crash which caused the Great Depression of the 1930s. Today, Japan is still trapped in a moribund downward deflationary spiral.

…It has been over two decades since the popping of Japan’s economic bubble and the country is still actively battling with deflationary forces that are so powerful that near-zero interest rates (zero-interest rate policy or ZIRP), repeated bouts of quantitative easing (some call it “money printing”) and constant Yen-weakening currency interventions have barely made a dent.

After the Nikkei’s collapse, the US dot.com bubble burst in March 2000. Next, came the US real estate bubble whose collapse in 2007 lead to the Wall Street crisis of 2008; and, in August 2011, global markets plunged when the European sovereign debt crisis erupted.

[Japan] has increasingly come to function as a kind of canary in the mine of the global economy. Japan was the first to demonstrate something that is now obvious worldwide: …Monetary policy alone cannot loosen the shackles of a deflationary trap. We have seen orgies of credit creation by the world's leading central banks, and yet the global economy sits on the edge of a deflationary abyss as commodity prices tumble and country after country spirals downwards….

Banking is a parasite on the body economic that eventually destroys that upon which it feeds

CENTRAL BANKERS’ LAST RESORT - HELICOPTER MONEY

Let us suppose now that one day a helicopter flies over this community and drops an additional $1,000 in bills from the sky, which is, of course, hastily collected by members of the community. Let us suppose further that everyone is convinced that this is a unique event which will never be repeated… [ex falso quodlibet, i.e. from a falsehood, anything follows]

…Money-financed fiscal programs (MFFPs), known colloquially as helicopter drops, are very unlikely to be needed in the United States in the foreseeable future…However, under certain extreme circumstances—sharply deficient aggregate demand, exhausted monetary policy, and unwillingness of the legislature to use debt-financed fiscal policies—such programs may be the best available alternative.

The fact is, Bernanke has been a charlatan and intellectual lightweight all along—–going back to his alleged scholarship on the Great Depression. He was no such thing. He simply zeroxed Milton Friedman’s mistaken theory that the Fed failed to go on a bond-buying spree during 1930-1932 and that this supposed error turned the post-1929 contraction into a deep, sustained depression.

No, it didn’t. The 1930s depression was the consequence of 15 years of wild credit expansion—-first during the “Great War” [WWI] to fund the massive expansion of US food and arms production and then during the Roaring Twenties to finance the greatest capital spending binge in history prior to that time.

The depression was not a consequence of too little money printing during 1930-1932, but too much speculative borrowing and investment by business and households after the Fed discovered its capacity to print money during the warand the decade thereafter.

BERNANKE IN BLUNDERLANDAND THE ROAD YOU’RE ONThe time has come, Bernanke saidTo talk of many thingsOf crashes – cash – and the lack thereofOf inflation taking wingAnd why a helicopter’s neededAnd why credit’s no longer king

But wait a bit, the crowd did cryWe’ve had enough of thatThe froth’s too high and everywhereAnd the one percent’s too fatBernanke, however, was undeterredRemembering Friedman’s chat

That if a helicopter flew overheadDropping thousands from the skyCombined, of course, with tax cutsThen deflation would surely dieBut try as they might in the real worldThose theories just don’t fly

But nebbish minions with learned mindsAre not so easily persuadedTo submit to truths and light sublimeWhen power and fame they’ve weddedSo keep your counsel in these darkest of daysAnd watch with whom you’re bedded

For the crowd you’re with determines muchWhether to darkness or light you’re drawnThe present world’s passing awayAnd the coming has yet to dawnSo twixt tomorrow and todayTread carefully the road you’re on

--drschoon, 4/15/2016

THE TIME OF THE VULTURE

The patient is in a critical condition. The International Monetary Fund is concerned that the global economic recovery has taken too long. Kaushik Basu, chief economist of the World Bank, says the financial crisis has left a “festering wound” that is “refusing to heal”. Growth is too weak, resulting in the equivalent of a compromised immune system that has left the economy vulnerable to fresh diseases.

The question now facing the global economy’s physicians: is the ailment chronic or acute?

ANSWER: It’s fatal; a prognosis no one wants to hear or accept.

The most common form of blindness is denial

Because of its ubiquity, it is seldom seen for what it is

On April 27th, Bill Gross said, “..this quarter, for almost the second quarter in a row, we’re close to the flatline [i.e. parcus nex, economic death] in terms of economic growth.’

In 1991, I wrote:

In times of expansion, it is to the hare the prizes go. Quick, risk taking, and bold, his qualities are exactly suited to the times. In periods of contraction, the tortoise is favored. Slow and conservative, quick only to retract his vulnerable head and neck, his is the wisest bet when the slow and sure is preferable to the quick and easy. Every so often, however, there comes a time when neither the hare nor the tortoise is the victor. This is when both the bear and the bull have been vanquished, when the pastures upon which the bull once grazed are long gone and the bear's lair itself lies buried deep beneath the rubble of economic collapse. This is the time of the vulture, for the vulture feeds neither upon the pastures of the bull nor the stored up wealth of the bear. The vulture feeds instead upon the blind ignorance and denial of the ostrich. The time of the vulture is at hand.

25-years ago, a deflationary collapse greater than the Great Depression seemed impossible; but, today, signs of such a collapse are everywhere; obvious to all except to the ostriches still carefully picking through the decaying remains being discharged from the bankers’ charnel house of credit and debt.

In a deflationary depression cash is king

In a runaway inflation cash is worthless

In each, gold is priceless

On April 29th, gold reached $1296.56, rising $54 (+4.26%) in two days; in stark contrast to June 2103 when gold fell (pushed by the paper money cartel) from $1400 to $1190 (-15 %). Today, gold is again rising and while its trajectory is unknown, its ascent is certain. Gold was the cotter pin in the bankers’ Ponzi-scheme of credit and debt. Without it, the Ponzi-scheme is collapsing.

Darryl Robert Schoon writes and lectures on the causes and significance of the economic collapse. His book, Time of the Vulture: How to Survive the Crisis and Prosper in the Process predicted the collapse and the following severe downturn. He graduated from UC Davis (1966) in political science with a focus on East Asia. His immersion in the 1960’s subculture in the Haight-Ashbury radically altered his outlook contributing to the unique point-of-view through which he views the collapse of the present economic system. He has lectured in Europe, Australia and the US and has written five books. Visit his website at www.drschoon.com. You can reach Darryl at: info@drschoon.com.