Deflation, Globalization and Depression: Part 2
Economist’s have talked about the business cycle for well over a century. Every cycle has a boom period and a bust period. The boom times are periods of growth in productivity, wealth and the standard of living. In each business cycle there are periods of slow growth, stagnation and even times of recession where the economy actually contracts. Some economic theorists even speak of a long cycle which is comprised of many business cycles. These long cycles are often referred to as having four seasons, an economic spring, summer, fall and winter. It is in the winter that economies enter into a severe recession or depression.
Since the business cycle is accepted as true and that most economists expect downturns, recessions and the occasional depression it would make sense that some prepare for and even look to benefit from depressions and economic winters. Let’s take a look at some of the reasons why some very powerful people may actually want a deflationary period and even an economic depression.
In my last post I mentioned that the irresponsible lending habits of our financial institutions eerily resembled that of the International Monetary Fund and World Bank. I also mentioned how those institutions routinely overwhelmed developing nations in debt only to forgive the debt through gaining ownership of the debt laden countries assets. For a more detailed look at how our financial institutions might be using this strategy to profit off the middle class and increase their overall wealth through increased ownership I suggest you read my post of August 1, 2007. This post is entitled The Debt End Game. While in review mode you may also want to read A Fed Opportunity dated September 19th, 2007 and some of my other posts of economic issues I wrote in June and July of last year.
Even if those of economic wealth and power did not plan on exploiting or destroying the American and European middle classes through unserviceable debt, they still may desire a well managed deflationary period. Let’s take a look at how the efforts at globalization might benefit by a period of deflation.
Let’s start with a quick review of the differences between inflation and deflation. In times of inflation the following are common occurrences; prices and wages rise, as do interest rates, and the purchasing power of the dollar decreases. In deflationary times, prices decline, unemployment rises, wages fall and interest rates decline. Since inflationary times often accompany economic growth and deflationary times bring economic hardship, we commonly try to avoid or minimize deflationary periods.
There has been a trend in modern capitalism to shift a greater amount of wealth into a fewer number of hands for decades now. The disparity between the rich and the poor has grown exponentially over the last 20 or so years, so that the majority of the nation’s wealth is horded by the top 1/2 of 1% of the populace. A good portion of the exceedingly wealthy appear quite comfortable with this arrangement as they continue to strive to increase the disparity. This is one of the natural outcomes of a competition based free market society.
Since the late Reagan and early Bush 1 years we’ve heard increased discussion of the birth of a global economy referred to the New Word Order. Notice that it is not referred to as a global economic society, but a global world order. This language emphasizes a hierarchy while minimizes the idea of an equal sharing community.Now, for a wealthy individual looking to maximize wealth and power through a global world economic order there are some obvious payoffs for helping orchestrate a global depression focused in the US and Europe.
One of the goals of globalism is to have one world economy. This would work best if all the workers on the planet had the same wage scale for similar labor. Yet, at this point the workers in the US and Europe make far more than those in developing nations. This is why the US has lost so many manufacturing jobs to developing nations who have a far lower wage scale. So, true globalism is difficult to achieve until the US wages come down to meet the poorer nations as they continue to raise their workers wages along with their standard of living.
Yet, if the US and Europe were mired in a lengthy and severe deflationary depression then the US workers wages would come down solidly and thereby quicken the pace of having developing nation’s wages come up to ours. Not only does deflation accomplish this but it also causes many businesses to fail allowing even more wealth and ownership of assets and resources to flow into fewer hands.
Don’t you think the truly wealthy understand this, especially since many of the wealthiest families made their money during the last Depression, or were well positioned at the end of the last Depression? Is it shocking to learn that many large corporations have slowed investment down and instead are sitting on record amounts of cash? Wouldn’t this be advantageous if you were expecting deflation? The extra cash would be great for lean times and it allows you to purchase things at incredible prices (pennies on the dollar) when the deflation has wrung out all excess out of the narketplace.
Well, that’s enough for today. Any thoughts?
Jim Guido