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The Perfect Storm

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  • The Perfect Storm

    More on the inflation/deflation debate.
    Both has been my call for a while.
    The Perfect Storm
    Sol Palha

    There are but two ways of paying debt: Increase of industry in raising income, increase of thrift in laying out.
    Thomas Carlyle1795-1881, Scottish Philosopher, Author

    It's our turn to take our hand at a gloom, doom type scenario. Well at least a minor hand. I call it the perfect storm because we are in a true paradox situation. At the Tactical Investor we specialize in looking at things from a different set of eyes and locking onto new emerging trends long before the masses even get a whiff of them. Credit is given to Jim Puplava for being one of the first individuals to bring this topic to light.

    We are witnessing something that has not been seen before. We have inflationary and deflationary forces coexisting together in almost perfect harmony. Let's expand.>>

    <<Many analysts endlessly argue the "Deflation vs. Inflation" debate without acknowledging that both are possible either simultaneously or sequentially in quick succession. We are currently experiencing both inflation and deflation simultaneously because many manufactured goods are still falling in price while commodities and other fundamental necessities of life are rising. I have to give credit to Mr. Jim Puplava for first describing the Perfect Storm scenario of simultaneous inflation/deflation. It seems to be unfolding as he described, but with the glaring exception of the hyperinflating real estate sector.

    I believe that a sequential or cyclical inflation/deflation is also possible. A number of analysts have pointed out that an increase in energy and/or commodity prices can actually cause recession when there is insufficient growth in incomes. These price increases act like a tax increase to reduce discretionary spending. This seems to be the situation we currently have in the US. Will consumers continue to buy luxuries with abandon while they struggle to pay for necessities? Any pullback in consumer spending is likely to become self-reinforcing, creating a feedback loop that pulls down prices and economic growth. Government policy will almost certainly respond with more monetary inflation and deficit spending, but these remedies will take time to trickle down into the general economy. In the mean time prices could fall, albeit temporarily. This time lag between policy and response further aggravates the situation by creating deeper cycles and even more chaotic money flows.

    Whichever way the Perfect Storm evolves, many people will get hurt. The antidote for economic chaos and complexity is personal simplicity. I totally agree with Sol's advice to live below your means. Please do this by choice. Otherwise, the effects of the global economy may take away your ability to live beyond your means in the future. I have been living below my means for some time now and I find it a very satisfying lifestyle. Getting off the borrow/spend/earn treadmill has probably put years on my life and allowed me to reconnect with family, friends, and Nature.>>
    Find The Trend Whose Premise Is False - Then Bet Against It