How Our Global Economy Will Deflate in 2008

Deflation is defined by most economists as the opposite of inflation. This is retarded logic. Deflation in reality is the decrease in the cost of goods caused by either oversupply and overproduction of products, goods and services, without a corresponding increase in the available money supply or when borrowing dries up and savings increase in direct proportion to the incentives to borrow, save or go unemployed.

For economists especially, deflation has been defined and is sometimes used to refer to a decrease in the size of the money supply as a proximate cause of the decrease in the general price level without referring to the velocity of the movement of money through any particular economic system.

The faster a penny travels between people the quicker it turns into a dollar, only as long as you don't keep adding pennies to the pot! The slower a penny travels and the more it sits idly in someone's piggy bank, the longer it takes for that penny to grow into a dollar.

The latter definition of deflation is now more often referred to as a 'contraction' of the money supply. During deflation the demand for liquidity and that which is more quickly redeemable for other goods and services goes up, in preference to goods or interest bearing assets.

During deflation the purchasing power of the most acceptable medium of exchange dramatically increases and prices dramatically go in the opposite direction - downward!

Deflation is considered a four letter word by the Ivory Towers of Global Finance in our modern international economy because of the potential of a deflationary spiral and its' mental association with the Great Depression, and the fact that all bankers and lawyers pay packages depend in the long run on slow stable economic growth of the planet as a whole.

Not all episodes of deflation correspond to periods of poor economic growth historically. In the minds of most people deflation is equated with the depression of the 1930's. This is the result of the government convincing most everyone in the world that inflation in tiny moderation is good for the global economy. Nothing could have ever been further from the truth!

The study of economic spirals is interesting. David Hargave is a great artist who does amazing things with clouds and spirals.

Credit: David Hargrave

Copyright: David Hargave