The Emperor has no clothes

I have written about inflation vs deflation in a previous article (Deflation: Friend or Foe) , however I feel it warrants addressing again as our economically-challenged Bank of Canada Governor Stephen Poloz is once again arguing the merits of an economy that must sustain inflation. Bankers, politicians and many economists believe that inflation is an absolute necessity for a healthy economy. This is essentially the equivalent of saying that a certain amount of heroine must be consumed on a daily basis to keep the human body healthy. Inflation at any level is corrosive and highly destructive to the purchasing power of the citizens of any country. Inflation is simply an expansion of the money supply which precipitates rising prices in an economy. The result is that a dollar today will purchase less than it will at some point in the future. However it’s a Ponzi scheme to tax the citizens of a country and a necessity to keep the scam of fractional reserve banking afloat.

The opposite of inflation is deflation: A shrinking of the money supply and an increase in the purchase power of a currency for the citizens of a country. The argument presented by our central banker is that the problem with deflation is,  "Expectations become unanchored on the downside and people put off their purchases because they expect things to be less expensive later." Because of this insane theory, central bankers around the world fear deflation as much as politicians fear a public audit of their expense accounts.

Photo: Contributed

As a student in university, I too was offered the same “Deflationary Kool-Aid” as that drank by central bankers. The difference is I refused to imbibe in their toxic concoction. It simply didn’t make sense. Now, with 20 years of economic and trade floor experience I still refuse to consume the cocktail. Central bankers believe that if we have deflation people will put of purchases until some point in the future. So nobody buys anything today, the economy goes to hell in a hand basket, zombies invade the planet and life as we know it will cease to exist. It’s a good script for a B-grade horror flick. So given the Kool-Aid alcoholics theory we won’t buy food today because it will be cheaper tomorrow. We won’t go to university today because it will be cheaper later. Even though you are cold today, you will hold off buying a sweater until it is cheaper.

All economic theories should be equally valid when inverted. Thus using the deflationist's theory, in an inflationary economy we will purchase everything today because we fear rising prices in the future. (Insert a healthy dose of sarcasm here.)  It makes sense to me. Every time I go to the grocery store I make sure to buy two months’ worth of groceries as I know prices will rise in the future. I often buy three tanks of gas when filling up my car because I don’t want to pay more in a few weeks. And of course I always buy my clothes in bulk as I fear future rising prices. I suppose this theory makes sense to the intoxicated central bankers, but to rational citizens we see the flaws in this theory.

The point of this article is to be able to refute the argument the next time you hear bankers or politicians tell you that deflation is something that we must prevent at all costs from entering our economy. With the inflation that has been inflicted upon the globe for the past 45 years, we need a good dose of deflation to shrink government, return the purchasing power to the people and increase the standard of living around the globe.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.