Debt Deflation?

By itself, inflation (rising prices) may be annoying , but it’s fundamentally harmless. I.e., suppose your job paid $50,000 a year, the inflation rate was 10% and prices increased by 10%. That 10% rise in current prices for bread, gasoline and homes might be mathematically annoying, but those increases in current prices would make no real difference so long as your current income were also increased by 10% to $55,000 per year. So long as your current income is inflated right along with the current prices of goods and services, inflation is basically harmless.

The same is true for deflation (falling prices). If 10% deflation causes your current annual income to fall from $50,000 to $45,000, you’re not fundamentally hurt (or enriched) so long as the prices of bread, gasoline and homes simultaneously fall by 10%.

However, while inflation and deflation are intrinsically harmless relative to current prices, they can have lethal effects with regard to pre-existing debts. The effects of inflation and deflation on debt can provide the primary stimulus (during inflation) or threat (during deflation) to our economy.

 

Just “Figurin’ Around”

I started tracking the nine following economic indicators on a weekly basis last June 20^th. I’ve arranged those indicators in order of their percentages of increase or decline below. From June 20^th through November 14^th—a little less than five months—those indicators moved as follow:

1. US Dollar Index rose 15.40 points from 72.28 to 87.68—about 21.3%.

2. “spot” Gold fell 19.9 % from $926.80 to $742.30

3. DJIA fell 25.1% from 11,346.50 to 8,497.30

4. NASDAQ fell 34.5% from 2,315.63 to 1,516.85

5. NYSE fell 36.8% from 8,623.51 to 5,452.63

6. Silver fell 45.8% from $17.48 to $9.47

7. Palladium fell 54.3% from $466 to $213

8. Platinum fell 59.2% from $2,042.00 to $833

9. Crude Oil fell 59.8% from $140.57 to $56.45

 

A Multiplicity of Citizenships?

In A.D. 1852, the Supreme Court of the United States declared in Moore v. Illinois (14 How. 13; 55 U.S. 19) that:

“Every citizen of the United States is also a citizen of a State or territory. He may be said to owe allegiance to two sovereigns, and may be liable to punishment for an infraction of the laws of either. The same act may be an offence or transgression of the laws of both.”

Thus, the idea of dual citizenship (U.S. and State) as found in the 14^th Amendment actually preceded the 14^th by decades and arguably existed from at least the establishment of the U.S. Constitution in A.D. 1789 and might trace back to the Articles of Confederation of A.D. 1781. More, I am surprised to see that there has always been a third kind of “citizenship”: territorial.

 

Signs of the Times

On Thursday, November 6^th The New York Times published the four articles which, in sum, offer a snapshot of where our economy is, and where it’s heading. Excerpts from those articles and my comments follow:

 

Tragedy Tomorrow, Comedy Tonight! (or, Economics is easy—comedy is hard.)

There’s a fine line between heroics and hilarity. There’s a point where even heroes become clowns.

If you read enough about our current economic crisis, you can’t help but develop a mortician’s sense of humor. Each grim new statistic and depressing report becomes cause for giggling rather than despair. It’s like watching men in the engine room of the Titanic struggling desperately to stop the unstoppable influx of water. At first, you might feel inspired by the men’s heroic efforts. Later, you might feel saddened.

But if you watch long enough, you’ll start to snicker at the “heroes” until you finally shout, “Y’ damn clowns—quit bailing! Can’tcha see the ship is goin’ down? . . . Runnn, you mutha’s, runnnn!”