The Biflation Paradox
By: Tom Chatham
Great debates are now going on between economists as to whether we are experiencing inflation or deflation. The conclusion as to which we have determines what actions need to be taken to correct the economic situation and restore balance to the system. Each has offered facts to back up their claims but what if they are both right? Can we have inflation and deflation at the same time and what would cause that to happen? It is necessary to understand this phenomenon because our collective financial futures depend on it. During difficult times, debt laden governments have either collapsed or massively devalued their currency to stay afloat.
With inflation the currency unit is less valuable and as a result the price of goods goes up. With deflation the currency unit is more valuable and the price of goods goes down.
With biflation you have inflation in commodity based assets while you experience deflation in debt laden assets. To put it another way you have simultaneous inflation in things such as food, energy and precious metals while having deflation in things such as real estate, cars and boats. One explanation for this is that debt laden assets are elevated to artificially high prices due to excessive amounts of credit in the system and when the currency units cease to increase at sufficient levels to service the debt, deflation sets in as the debt becomes harder to repay and must be written off or reduced.
In an effort to prop up debt laden assets, the FED increases the currency supply but deflation has set in and the excess currency from the FED finds its way into the commodity based assets and causes inflation. That is the disconnect the FED has with the economy. The FED is fighting deflation in debt based assets while ignoring the inflation being created in commodity assets.
The dollar is the currency standard for the time being. Gold and silver are the anti-currency standard. When one goes up the other goes down but manipulation in the financial arena has kept the anti-currency at a lower level than it should be with the current real value of the dollar.
Biflation causes assets to inflate in relation to currency units while deflating in terms of anti-currency units. As time goes on gold and silver will keep up with or ahead of inflation in commodity assets and will increase many times over in regard to debt based assets as deflation continues to its natural ends.
In Yugoslavia in the 1990’s, a currency crisis ensued that eventually caused prices to double every 1.4 days. This destroyed the economy and peoples savings. To put that in perspective, if you had a $100,000 CD and prices doubled every 1.4 days, the purchasing power of that CD would be reduced to less than $1 in 29 days.
Many Americans hold the belief that, it can’t happen here, but consider an American in their early 40’s with $200,000 in a retirement account that is meant to provide for them in their retirement. Most working adults are aware of the price increases in food and energy over the past few years. If we only experienced inflation that doubled every 1.4 years, in 29 years your retirement account would equal only a few dollars in real value.
Today’s dollar is equal to about 3 cents in 1913 dollars. Over the past few years the FED has decreed that inflation is only 2-3% annually when in reality it has been 8-11% annually. This is one way persons receiving benefits with cost of living increases and those dependant on interest bearing investments are being impoverished little by little by the government. This is why people are having a more difficult time paying for necessities as time goes on.
People are loosing their savings and purchasing power to inflation as we speak and very few realize it. Many are losing their stored wealth in debt based vehicles such as homes as deflation reduces the dollar value of these assets as commodity inflation makes the dollar worth less. Just as the people of Yugoslavia didn’t see it coming, the American people will not see the reality of inflation until it is too late.
Gold and silver are the anti-currency and as history has shown many times over, it is the only way to preserve your purchasing power for future use. As the price of precious metals rise it is a clear indicator of the losses that are mounting in the financial sector to the detriment of savers.
The U.S. is not immune from the laws of economics. Biflation is destroying peoples’ savings and purchasing power from both ends at once. With all of the machinations that are now in play within our financial system, conditions are ripe for a significant event.