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FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Exorcising Economic Deflation Delusions Is Essential To Wealth Enhancement

Economics / Great Depression II Oct 23, 2009 - 02:41 PM GMT

By: DeepCaster_LLC


Best Financial Markets Analysis Article“Economic reporting has shown no meaningful signs of business recovery, with the current depression likely to evolve into a great depression, in conjunction with the collapse of the value in the U.S. dollar and a hyperinflation. Risks are high for these crises to explode in the year ahead. The general outlook is not changed…

The reported monthly decline in retail sales followed a downward revision to the previously reported clunkers-related sales gains in August…

…September’s CPI picked up some new-car inflation that had been masked in the prior month by the Bureau of Labor Statistics (BLS) not counting clunker rebates as part of new-car pricing. Such was offset in today’s reporting with an extremely suspect decline in food inflation. The CPI-U reflected both month-to-month and year-to-year declines in food prices, yet, seasonally-adjusted retail sales showed higher grocery store sales both month-to-month and year-to-year…” (emphasis added)

September Annual Inflation -1.3% (CPI-U), 6.1% (SGS) CPI-U Inflation Spike Due by Year-End No Recovery: September Real Retail Sales Continued Bottom-Bouncing At Low-Level Plateau 10 Years of Retail Sales Growth Gone

John Williams’ Shadow Government Statistics, October 15, 2009

A key factor in developing a Profitable investment Strategy is a determination of the likely inflation outlook.

Unfortunately, certain confused Pundits mistake a declining rate of inflation for deflation. No, the past year’s declining rate of Real U.S. Consumer Price Inflation still leaves us with Inflation (per, but just at a lower rate, temporarily.

Not so, says the Confused Pundit. After all, he says the Official September Annual Inflation Rate was a negative 1.3%.

Fortunately, John Williams’ (which calculates the Real Numbers the old-fashioned way they were calculated before the Political Gimmicking which began in the 1980’s and 1990’s) shows us the Real CPI, which, as of September, 2009, was 6.1%.

To be sure this Rate has decreased from the 12.86% Rate of a year earlier in September, 2008, but Inflation is still Inflation.

Unsurprisingly, in a transparent attempt to hide its policy of monetary inflation, (and resultant erosion of the Purchasing Power of the U.S. Dollar and of the Earned Wealth of those holding dollar-denominated Assets) the private for-profit Fed stopped reporting M3 as of March, 2006.’s independent M3 Calculation shows us that M3 immediately skyrocketed to 17.37% by March, 2008 and then gradually fell to 2.34% today (October 16, 2009 Report). Note that this past two and a half years have brought us a substantial average rate of Monetary Inflation.

Couple the continuing high rate of Real CPI (and the M3 increase) with the rigging of other Official Statistics and with Massive Injections of liquidity via the Stimulus and Bailout Packages plus massive extensions of Credit to the too-big-to-fail Mega-Financial Institutions and one have a set of conditions for a Perfect Storm of Hyperinflation, which will likely become apparent beginning some time in 2010. Thus the Deflation Delusion will be exorcised.

Another Deflation Delusion is that the Equities Crash of 2008 sufficed to remove The “Excess Leverage”, reflected in the Toxic OTC (i.e. not Exchange Traded, and thus “Dark”) Derivatives, from the Financial System.

As reported by the Bank for International Settlements, the Central Bankers’ Bank, between June, 2008 and December, 2008 (i.e. the Period of The Equities Market Crash) The Notional amount of OTC Derivatives outstanding was reduced by “only” some $92 Trillion, from $683 Trillion to $591 Trillion. See Table 19 at (Path: Statistics>Derivatives>Table 19) and below.

Thus there is still (latest reported figures as of December, 2008) a massive overhang of $591 Trillion of Toxic or potentially Toxic OTC Dark Derivatives which remain as a constant Threat to Systemic Stability.

And, for those who think it does not matter that The Fed (and other Mega-Banks) is a private for-profit Entity, just consider that in the last six months of 2008, when Equities Investors were losing Trillions, the Market Value of Mega-Financial Institutions’ dark OTC Derivatives gained some $13.4 Trillion in Market Value. See Table 19 at (Path: Statistics>Derivatives>Table 19).

How this exactly happened (did the Mega-Banks know in advance, perchance of the Coming Crash? Or were they complicit? Or worse? ). And which Mega-Financial Institutions benefitted we do not know – The private for-profit Fed refuses to tell us or the U.S. Congress.

But we would not be surprised if certain of the Mega-Bank beneficiaries of The Crash were shareholders of The Private for-profit Fed. Who else?

To make a $13.4 Trillion Gain when Investors around the world are losing Trillions might seem just coincidental, until we consider that a Fed-led Cartel* of Key Central Bankers and Favored Financial Institutions regularly overtly and covertly Intervene in Major Markets.

*We encourage those who doubt the scope and power of Overt and Covert Interventions by a Fed-led Cartel of Key Central Bankers and Favored Financial Institutions to read Deepcaster’s December, 2008 Letter containing a summary overview of Intervention entitled “A Strategy for Profiting from the Cartel’s Dark Interventions & Evolving Techniques” and Deepcaster’s July, 2009 Letter entitled  "A Strategy For Profiting From The Cartel’s Dark Interventions & Evolving Techniques - II" in the “Latest Letter” Cache at Also consider the substantial evidence collected by the Gold AntiTrust Action Committee at for information on precious metals price manipulation. Virtually all of the evidence for Intervention has been gleaned from publicly available records. Deepcaster’s profitable recommendations displayed at have been facilitated by attention to these “Interventionals.”

However, over the long run, Data Gimmicking and Market Intervention likely will not be sufficient to overcome the recent massive injections of Fiat money and credit.

Appearances and Delusions will eventually be displaced by Reality.

Thus the U.S. Dollar’s Purchasing Power has been steadily eroding since 2002. And given the aforementioned increased Injections, the erosion will continue, which means, so far as U.S. dollar-denominated assets holders are concerned we face an extreme hyperinflationary future.

As the U.S. Dollar’s Purchasing Power continues to Erode and Public Discontent is amplified via the ‘Audit The Fed’ bill in the U.S. Congress. The Cartel is impelled to implement an ‘End Game’, as we call it, to maintain its Power and Wealth. (See “Coping with the Superpower-Cartel Threat!” 01/30/2009 in the ‘Articles by Deepcaster’ cache at

An essential component to their ‘End Game’ is (from The Cartel’s perspective) developing an Alternative to the U.S. Dollar which does not involve a link to Gold and Silver. [For the typical Investor however, Salvation does lie in Gold and Silver, provided they adopt a Strategy to surmount the effects of periodic Cartel Takedowns of Gold and Silver Prices. Deepcaster has developed such a Strategy, described in Deepcaster’s article “Defeating the Cartel... With Profit” (03/28/2008 (part 1) and 06/19/2009 (part 2)) in the ‘Articles by Deepcaster’ cache at]

Chris Powell, Secretary of GATA quotes Jim Rickards, direction of Marketing Intelligence for the Omnis Consulting Firm on The Problem:

“When you own Gold you are fighting every Central Banks in the world.”

N.O. Investment Conf. October 8, 2009.

This is quite true since Gold and Silver are threats to the legitimacy of the Central Banks’ Fiat Currencies and Treasury Securities.

And just what is this ‘End Game’ which The Cartel is implementing via its ‘End Game’ alternative?

Deepcaster has earlier laid out evidence that an “Amero” is/was planned to be the currency of the North America Union of the U.S.A., Canada and Mexico.

Fortunately for the citizens of these countries this plan has been derailed, at least temporarily.

So the latest Mega-Bankers ploy appears to be to introduce a Global Currency, (designed to eventually replace the U.S. Dollar as the World’s Revenue Currency) via IMF SDR’s, much to the detriment of nations and citizens around the world.

Ellen Brown cogently explains:

According to Jim Rickards…the unannounced purpose of last week’s G20 Summit in Pittsburgh was that “the IMF is being anointed as the global central bank”…the plan is for the IMF to issue a global reserve currency that can replace the dollar…

“They’ve issued debt for the first time in history…They’re issuing SDRs…When I say issuing, it’s printing money; there’s nothing behind these SDRs”…

“SDRs, or Special Drawing Rights, are a synthetic currency originally created by the IMF to replace gold and silver in large international transactions…little used until now…The U.S. has fueled the world economy for the last 50 years, but now it is going broke. The U.S. can settle its debts and get its own house in order, but that would cause world trade to contract. A substitute global reserve currency is needed to fuel the global economy while the U.S. solves its debt problems, and that new currency is to be the IMF’s SDRs…

…it leaves the U.S. in a vulnerable position. If we face a war or other global catastrophe, we no longer have the privilege of printing money. We will have to borrow the global reserve currency like everyone else, putting us at the mercy of the global lenders…

To avoid that, the Federal Reserve is hinting that it is prepared to raise interest rates, even though that would mean further squeezing the real estate market and the real economy. Rickards was referring to an oped piece by Fed governor Kevin Warsh…As Rickards put it, “Warsh is saying, ‘We sort of have to trash the dollar, but we’re going to do it gradually’…

…“What they do is inflate the dollar to prop up the banks.” The dollar has to be inflated because there is more debt outstanding than money to pay it with. The government currently has contingent liabilities of $60 trillion. “There’s no feasible combination of growth and taxes that can fund that liability,” Rickards said. The government could fund about half that in the next 14 years, which means the dollar needs to be devalued by half in that time…

Reducing the value of the dollar by half means that our hard-earned dollars are going to go only half as far, something that does not sound like a good thing for Main Street…we see that the move is not designed to serve us but to serve the banks. Why does the dollar need to be devalued? It is to compensate for a dilemma in the current monetary scheme…one that might be called a fraud. There is never enough money to cover the outstanding debt, because all money today except coins is created by banks in the form of loans, and more money is always owed back to the banks than they advance when they create their loans. Banks create the principal but not the interest necessary to pay their loans back…

The Fed, which is owned by a consortium of banks and was set up to serve their interests, is tasked with seeing that the banks are paid back; and the only way to do that is to inflate the money supply to create the dollars to cover the missing interest. But that means diluting the value of the dollar, which imposes a stealth tax on the citizenry; and the money supply is inflated by making more loans, which adds to the debt and interest burden that the inflated money supply was supposed to relieve. The banking system is basically a pyramid scheme, which can be kept going only by continually creating more debt…

And that brings us back to the IMF’s stimulus package discussed last week by Professor Buckley. The $500 billion package was billed as helping emerging nations hard hit by the global credit crisis, but Buckley said that he doubts that is what is really going on. Rather, the $500 billion pledged by the G20 nations is “a stimulus package for the rich countries’ banks”…

…Because stimulus packages are usually grants. The money coming from the IMF will be extended in the form of loans…

Not long ago, the IMF was being called obsolete. Now it is back in business with a vengeance; but it’s the old unseemly business of serving as the collection agency for the international banking industry…but the $500 billion in funding is coming from the taxpayers of the G20 nations, and the foreseeable outcome will be that the United States will join the ranks of debtor nations subservient to a global empire of central bankers…” (emphasis added)

The IMF Catapults from Shunned Agency to Global Central Bank Ellen Brown, The Web of Debt, October 1, 2009

Deepcaster has outlined a Strategy to cope with Cartel policies as it strives to achieve Super Power Status (see “Coping with the Superpower-Cartel Threat!” 01/30/2009 in the ‘Articles by Deepcaster’ cache at

Those who think ‘Buy and Hold’ is a Profitable Strategy should consider that over 10 years ago, on March 29, 1999 the Dow was at 10,000, the level it just touched recently. That is, No Gain in 10 Years!

In fact, “Buy and Holders” are sitting on a huge loss over that decade because the purchasing power of today’s dollars is much less now. Deepcaster’s Strategy of “Sowing and Reaping Repeatedly” while monitoring the Interventionals as well as the Fundamentals and Technicals, is the only profitable Strategy these days.

In sum, there is much at stake. Will the citizens of debtor nations become “subservient to a global empire of central bankers” or will citizens of nations around the world be able to achieve free markets as free people? The jury is out.

But the Jury is not out on the Real Data which shows that hyperinflation is soon to become obvious. We conclude with John Williams’’ Conclusion with which we concur:

“… Going against the pressures of collapsing oil prices in fourth-quarter 2008, year-to-year change in PPI inflation should turn positive, once again, by year-end 2009…

…Given the underlying reality of a weaker economy and a more serious inflation problem than expected by the financial markets, risks generally will remain for higher-than-expected inflation and weaker-than expected economic reporting in the month ahead.”

Shadow Government Statistics #252, October 20, 2009

table chart

Source: Bank for International Settlements, Path: Statistics > Derivatives > Table 19

Best Regards,

Wealth Preservation         Wealth Enhancement

© 2009 Copyright DeepCaster LLC - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


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