Saturday, November 19, 2016

Deflationary recession is now increasingly probable!

US bond yield has gone up by 50% in just 2 months reversing the long term trend!  This begun before  the recent US presidential election and is rapidly rising since the election, in the last couple of weeks.

The yield increase causes the financial asset values and the value of debt held as collateral - to decrease. This is highly deflationary! It can no longer be offset by "quantitative easing"(*) and any of the recently employed financial stimulation techniques, because injecting more cash into circulation causes the interest rates to increase or to decline less rapidly, which prevents the fixed assets and bond prices to recover or to reverse the declining trend. Providing a cash stimulus may even accelerate the banking and corporate collateral collapse by raising the interest rates and yields even further! On the other hand, the recently favored method of stimulating the large corporate economy by offering them cheap low interest credit might not work anymore (**) now that the interest rates have risen and the large corporate assets that can be used as the collateral for new loans - have declined in value!

The current global corporate economy has entered a classical two "poison pills" stage (***)! One "poison pill" being the corporate "globalism" - a credit-based corporate expansion (with austerity for everybody else), while the other "poison pill" being the financial stimulus policy of expanding the monetary mass. One "poison pill" solution neutralizes the effects of the other thus compelling the ruling elites to employ both of them alternatively resulting in the slower (but surer) decline as opposed to applying any one of the "solutions" alone which would lead to a rapid economic collapse!

Stan Bleszynski


(*) The reason monetary stimulus cannot reverse the current deflationary assets' collapse (though it may produce a localized price inflation for services, food and commodities) is that the global amount of fixed yield investment assets is about two orders of magnitude higher than the amount of monetary mass in circulation. Any increase in monetary mass attempting to push inflation and yields up would therefore be countered by strong deflationary decline of the fixed-yield assets held by corporations, investment funds and governments.

(**) Cheap credit offered at low interest rates, might still work for small property owners who unlike large corporations, are not yet fully credit-collateral-tapped-out! This would also prevent or would slow down the property collapse.

(***) I have seen this technique employed successfully for manipulating a victim into self-destruction that is very general and not limited to economy but used extensively in consumer marketing and other areas as well. It is based on promoting two equally destructive but opposing paths , products, ideologies or beliefs, with one countering the other. The victim is entrapped into pursuing them both switching alternatively from one to the other while spiraling into oblivion. To make this work, all choices other than those two have to be hidden from view or obfuscated. It is good to know about that what is hitting us, so that we can take precautions choosing something unpredictable and none of the above. 8-:)

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