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Endgame: The End of the Debt SuperCycle and How It Changes Everything by Jonathan Tepper, John Mauldin

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CHAPTER SEVEN

The Elements of Deflation

If Americans ever allow banks to control the issue of their currency, first by inflation and then by deflation, the banks will deprive the people of all property until their children will wake up homeless.

—Thomas Jefferson

Given the enormous levels of debt globally and the massive amount of government spending, one of the more important questions of the moment is whether we will face inflation or deflation. The quick answer is yes.

Without trying to be too facile, in most (developed) countries, there is the potential for both, so the trick is to figure out in what order they will come. For the next two chapters, we will look first at deflation and then at inflation (and hyperinflation!). We’ll explore what causes either economic event to happen.

The classic definition of deflation is a period of actual decline in the general price level and an economic environment that is characterized by inadequate or deficient aggregate demand.

The United States, the United Kingdom, Japan, and the European periphery are experiencing powerful, simultaneous deflationary forces that come from excessive debt and forced liquidation. This has created a classic balance sheet recession where after the bursting of a nationwide asset price bubble, a large number of private-sector balance sheets are left with more liabilities than assets. In response, central banks and fiscal authorities have launched equally massive increases the size of their balance sheet and ...

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