Deflation and QE – An Introduction – by Illuminati Silver

Deflation and QE – An Introduction – by Illuminati Silver


Welcome to illuminati Silver, we tell you
the truth about silver. Today is Monday 28th September 2015 and we
are briefly going to address the issue of deflation and QE
In order to keep our videos brief, this is just a short introduction to Deflation and
QE, a subject we shall return to many times over the coming months, with each video offering
a little more depth. So, to start, let’s consider the definition
of the word deflation. Deflation means “reduction of the general level of prices in an economy”.
So as a consumer you may very well ask, well why is that bad news? If prices are falling
then goods become cheaper and one is better off – right? Well not necessarily.
The major problem associated with deflation is that the real value of debts grows.
So if you borrow say $100,000 from a bank and deflation is 3%, you still owe the bank
the same $100,000 but the inflation adjusted value of the debt is now rising.
This generally means that you tend to spend less, and you become less confident about
the future. The same equally applies to businesses with
large borrowings. The second issue which is a little more subjective
is that of deferred purchase. If you as a consumer are considering purchasing say a
car, and you believe that the price will fall by a couple thousand dollars in 6 months to
a year time, you may indeed consider delaying that purchase, which then has an overall negative
effect on demand, thereby creating a supply surplus and thus causing the very reduction
in prices you were predicting. You will then experience a vicious circle of falling demand.
Take Japan for example. Since the early 1990s, Japan’s has endured alternating periods of
very low inflation, and deflation. During this time, they’ve had sluggish economic
growth and very disappointing stock market performance.
One of the reasons that policymakers were so worried during the 2008 Financial Crisis
was that they thought we could be heading into deflation if events continued. That could
lead to a 20-year economic slump, an economic malaise like that experienced in Japan.
The Central Bankers first policy weapon was to lower interest rates as far as they could
go. That way, they stimulated the economy. That’s fine, but of course, inflation reduced
also. If inflation is just 1% and interest rates
are 0.5%, then ‘real’ interest’ rates aren’t as low as you think, and therefore
there isn’t such a large economic stimulus. That’s known as the liquidity trap: if you
can’t cut interest rates any lower, below 0%, the impact of low interest rates is less
than you might expect. That’s why, because of this liquidity trap,
quantitative easing (QE) – money printing – was introduced. What policymakers were
very aware of is that the problem of the liquidity trap would become even worse if we moved into
deflation. Imagine if the interest rate is 0.5% and prices
are falling at 2%. In reality, interest rates are rather high, even if they don’t look that
way at first glance. That’s another sign of how damaging deflation can be. It can make
life very difficult for policymakers, governments, and for central bankers. That’s why they try
to avoid it. Another consequence of deflation is that lower
prices mean less corporate profitability and generally lower, or at best stagnant, wages
and increased unemployment. This then affects demand further, thereby again entering that
vicious circle of entrapment. So one asks are the USA and the rest of the
Industrial World in a state of deflation? Well, there has certainly been commodity price
deflation. Whether its oil, silver, iron, copper, sugar etc., etc., prices have been
falling. Incidentally, only today a large steel plant in the UK announced its closure,
laying off some 1700 jobs in a community dependent on that Industry – the reason? – falling
steel prices as a result of a reduction in demand.
Food prices have fallen in many countries, though the US have experienced rising prices
in certain staples. The one area that has not fallen is that of property rents, though
this has been, to a large extent, the result of a climbing property price market in recent
years. In many European countries, housing shortages have fuelled house price inflation,
in addition to investment capital being poured into ‘buy-to-let’ mortgages and properties.
Unemployment and consumer price indices are useful tools to provide an indication as to
whether deflation is on the horizon. However, as each country evaluates these differently,
and many have changed their calculations and assessments over time, it is difficult to
tell the true nature of the World’s economy with precision.
What one can say with a degree of certainty, is that very few economies are booming right
now, QE is not resulting in increased consumer demand and commodity prices continue to fall.
So, are we in a state of deflation? We believe so, which is why Governments around the World
have been, and are continuing to adopt aggressive QE measures and devaluing their currency in
the hope to bring ‘inflation’ back into their economies. Time will tell whether this
works or just lead to the economic Armageddon that a number of commentators are predicting.
We hope you have found this video useful and informative. If so, please give it a thumb
up, comment and if you haven’t already done so, please subscribe. Also it would be very
helpful if you could share this on twitter and follow us @illuminatisilv1. Disclaimer: Silver Illuminati owners come from a background
of Banking, International Wealth Management and Economics. Having now retired from these
worlds we are not qualified to give investment advice. Therefore, this and other productions
must not be deemed to be giving such advice and merely represent the personal views of
its owners.

28 Comments

  1. There is actually inflation in food prices in Japan, Asia, and the US (direct observation). When all discretionary income (if any exists after food and rent) is needed to service debt, deflation in commodities and durable/manufactured goods is inevitable is it not? One would also note that all the QE rounds never make it into the real economy – – they just line the banksters pockets and perpetuate their fraud.

  2. Policymakers hate deflation for a simple reason that it reduces tax revenues, IMHO. I think we are headed for more QE and negative rates next few years. I do not believe it will work, and eventually we will experience a world-wide mega economic crisis of some sort, a long depression, and lots and lots of conflict. I am first in line to buy the propaganda, and blame the Chinese, the Russians, ISIS and the Democrats.

  3. Your analysis serves to show that no one seems to know which way our economies will fail.The one thing that SEEMS certain is that hard times are ahead. My prescription for myself is to hunker down stay out of debt and save in silver.Cultivate good friends and garner new productive skills.

  4. "The major problem associated with deflation is that the real value of debts grow"

    1 – Why is that a problem? In case of deflation, interest rates can just fall to counterbalance that (once there is no need for a premium over inflation).

    "You tend to spend less and you are less confident about the future"

    2 – With falling prices we tend to spend more, since we have more purchasing power. Promotions are a good example of that. Shops do it not to sell less but to sell more.
    3 – Why would I become less confident about the future if I am gaining purchasing power? It's rather the opposite.

    "The same happens with businesses with large borrowings"

    4 – Feeble businesses then. Strong businesses can easily accumulate large sums of profits to make investments and they don't need to borrow for their everyday activities or, even worse, borrow to pay debt (which is hardly sustainable).
    5 – Or greedy businesses that want to grow fast. Well, in a deflation they have to grow slow and sustainable. No issue here either.

    "If you want to buy a car…you may delay that purchase"

    6 – Well, you certainly won't accelerate it because of the blackmailing inflation. That drug won't be there to dope the economy.
    7 – You won't delay the purchase nonetheless. It's like the hardware industry has been so far. PCs have been increasing in performance and decreasing in price. Are people not buying them because of that? Any vicious circle of falling demand?

    "Take Japan for example"

    8 – Japan is the only "athlete not on doping" and it's "losing the race". Or should I say so deeply immersed into doping for so long that it doesn't produce effect anymore.

    "Another consequence of deflation is that lower prices mean less corporate profitability and generally lower or stagnant wages and increased unemployment"

    9 – Lower nominal profits. Equal real profits. Like everything else.
    10 – Lower nominal wages. Equal real wages. Like everything else.
    11 – Increased unemployment? Why so?

  5. 2:38 central time. Having survived the Super Blood Moon and Shemitah a week ago the DOW at this moment is down nearly 300 and according to Coinflation.com so is Gold and Silver.

    Anyone still believe Gold and Silver are the place to stash your cash?

    Oddly enough and paradoxically the wealthy as well realize there is no place to run they can stash it all except the one place they don't want to put it!

    After a long look at what is actually the next safe place to put cash until a whole new scheme is figured out is in the hands of THE PEOPLE at a reasonable interest rate. This would simultaneously solve the majority of problems. Keep business going, keep consumers going, keep the cash flow positive, and strengthen the base long term. When the 99% can't buy your junk because they are broke you have no one left to sell it to.

    Get ready for some stimulus from somewhere. Bush Style would be good. I could use some money in the mail!

    It's stimulus or die time.

  6. Excellent video!
    I do also listen to the other talking heads. One point that confuses me is the idea of the "destruction of money" and how that plays into deflation/inflation. As I understand it, should the debt bubble burst, then money will be destroyed ( the money loaned out is un-recoverable and thus no longer exists). This drop in money then pushes forth deflation. Can't wait for further commentary on this.

  7. As to silver's ability to retain value, which some people question, as a Canadian, I've seen this to be true, and this year specifically.

    As the "perceived value" against the "(not) Federal (and no) Reserve(s) Notes" has caused the exchange rates to dip to today's 33% against the FRN, any silver bought a year or two ago at roughly $20.00 CDN, while the spot was set at roughly $20.00 US, has retained it's value, despite the US value dropping to today's $14.60 US.

    The value of the Canadian dollar has eroded by 33%, and the value of the silver purchased at a higher price has retained it's value. If you were to sell silver previously acquired at $20.00 today, you'd get the same dollar value from it that you originally paid, despite the value of the dollar dropping by a full third…although what can be purchased with those devalued CDNs is lower, when based on purchasing power in the world markets.

    Another thing for people to consider is the fact that, even if silver went down to $1.00/oz and you'd purchased it at the high of $49.0 US, if you don't sell it, you lose ABSOLUTELY NOTHING.

    It's the same basic idea as "buy low, sell high", but with added "wait-states" in the middle. "Buy high…DAMN! It dropped! Get a little more every now and then to average the total costs at a lower per ounce over time…sell high."

    I do not profess to know how to predict the bottom of the market…so I'm playing it safe, with a little now, a little more later…and eventually, the direction will change (most likely while I'm asleep) and hopefully I'll have enough spare zeroes and ones to trade in for a hefty chunk of tangible assets.

  8. Another great vid. So follow the bouncing ball (as I understand it). As the values of assets depreciate, the banks mark-to-market valuations of their good performing assets fall as well. This means they will need correct their reserve ratios by whatever means they able to. This is a fractional reserve banking problem during deflation. The result is the bank will need to slow down the lending to less business activity – a death spiral. Do you agree with my bouncing ball?
    We seem to be following a Greece/Argentina glide path. QE will hopefully generate sufficient influx of capital to cause a positive asset re-valuation and save us all from going into the stone age. So does anyone believe a further QE debasement of our currency will work?

  9. Good video. I'd like to hear your view on why QE has not caused inflation as many predicted. Do you think it is just that deflation is winning the tug-of-war, or is it because the new money is stuck in the banks that needed to shore up their balance sheets, or is it a reduction in velocity of money caused by hoarding?

  10. I'm very surprised you did not pick up on my comments on your 'Manipulation' of PM's…and also did you miss the big headline on PM's from the BBC yesterday ( 28 Sept 2015) about the 'crisis' behind all the banks, accused by Swiss Authorities, of manipulating the Precious Metals market. It would have made a nice follow up on the comments left on your 'Manipulation' video ! http://www.bbc.co.uk/news/business-34378652 refers.

  11. A tire let us say for example is full of air at 55psi…starts deflating at 1psi per hour but you have a nice bike pump that you like and named it QE…and start pumping that tire at 0.5 psi per hour…the tire still goes flat and is useless just take more time.

  12. If the definition of inflation is increase in money supply, the definition of deflation should be a decrease in money supply. Believe this can be tracked by M2.

    What you are describing. Is price inflation, which is a result of increased money supply. Small detail, but important.

  13. Lowered interest rates only pull forward demand. When rates are normalized, the gap in demand is realized. QE only exacerbates the demand that is pulled forward, historically resulting in recessions. Keeping rates at zero for nearly a decade while increasing money supply by trillions, is unprecedented.

    The effects of normalization of rates and reducing debt will be catastrophic.

    The problem we face today is we can no longer service the debt at any rate above zero.

    How long the fed can keep rates at or near zero will determine when doomsday will be.

  14. If I had to chose between hyper inflation or deflation, Ill take deflation, because that scenario is more beneficial for people in society who manage money properly and have savings. Any person that has saved their money in a deflation scenario, can purchase goods at fire sale prices .  As far as world economies go,  they could easily be improved again if we have another significant invention to hit the markets which would create new industries/jobs and get people spending money again { think of what personal computers did for the economy when they started to become mass produced and a product wanted by most consumers}.

  15. How will the "Glencore problem" affect the silver and gold prices?

    Dear sirs, can you kindly make a video to comment on the above topic? thank you very much

  16. JUST AS EXPECTED-  silver/ gold could not hold onto the temporary gains it made last week.   I still predict that gold will come below $1100 and silver below $14 , before the end of this year . The 5 day PM rally we saw last week, has fizzled out.

  17. Deflation can also be very beneficial for TPTB…since they have control of the money and can purchase up land, homes, corporations at firesale prices when a nation has massive deflation .

  18. Why do you have to make the videos short. You can't you do 20 or 30 minutes to get into it a little better. Still a decent video

  19. Friday Oct 2. Today could see huge gains in gold and silver with the data of revised jobs report and the very disappointing September report. Today could be a huge moment for both the DOW and Silver and Gold. Not saying it will but the ground work is there.

  20. Gold/ silver, back up today. Both are extremely violatile recently . With the endless negative events in the world recently,  one would think PMS would be continually rising.  Still watching to see if silver can hold above $15.50 and gold above $1150 ….as a sign of some real strength in PMS.

  21. FWIW…some people are reporting that silver eagles are now selling for $6 over spot. It seemed logical that eventually the " middlemen" would start to fleece people on silver purchases. I wont be paying such high premiums for 1oz of silver.  My next silver purchase will be generic monster box.

  22. All the Q.E. has been misused to give the bottom line legitimacy in an economy supported by nothing but air. Those getting the money never let it hit main street, in stead, they redeposit it back to the Fed and take the interest, and other lowlife moves that insure there will never be a recovery, at least here. Q.E has done nothing but widen the wealth inequality, with few exceptions, and driven money velocity to all time lows, which to me makes it just a tool for the fool. That is my lay opinion, the money pyramid is up side down, with no foundation, and the longer this lasts the more blood will be sucked!
    I did have a question though if you don't mind, you've done well covering large debt, with assets at risk, but what about credit card debt? It seems that if you ask, they all have promotional balance transfers, with a one time fee, w/0% interest for 15 or more months,Witch on the surface seem great in a deflationary picture, if deflation would extend to everyday necessities for living more extensively, a little break for the little guy to catch up, or prep up, what ever the case. Is there a down side I'm, not seeing? This seems like more of a stimulus than anything anyone has done so far! Borrow a little now, and pay it back later at the inevitable inflated rates coming to finish the job, or with the monies saved by deflation. Governments and banks are the only ones who need inflation, but the bubbles just got way too big and velocity stopped cold by the greed of the hoarding at the top. If the money was moving their wealth would be credible, it;s not and isn't, but the question about the credit cards has me interested, if credit is destroyed, will not debt also?

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