Not one or the other, but both

One of my favorite financial writers, Jim Willie, recently wrote:

One of the primary objectives of the banking elite in firm control of the USGovt and USCongress is to confuse the public and investment community on the entire topic of inflation, what it is, how it is measured, and its risks. The same goes for deflation. All debate as to whether the Untied States will suffer from inflation or deflation is a horrible misdirected distraction that manifests the confusion. The US will suffer both higher monetary inflation and worse economic deterioration, not one or the other, but BOTH, and with steadily increasing intensity.

That is, our currency will be losing value, and our economy will be slowing to a standstill. In other words, decline and devaluation (see my earlier post).

Now, here is the confusing thing. Normally, if sales are declining and the economy is slowing down, companies would slash prices. Similarly, because home sales are down, home prices are also down. You have to have lower prices in order to get goods to move in a bad economy.

On the other hand, the dollar is losing value and we should be seeing higher prices because it takes more crappy dollars to buy the same stuff.

To some extent, these two bad trends are canceling each other out. This is one of the problems with only looking at prices. We have two really bad things going on-- total economic slowdown, plus a currency that is losing value like a balloon with a slow leak. But you can't see it in price data because they cancel out. Depending on the measure, prices may look a tad higher or a tad lower in a given month, but we're not seeing anything dramatic.

That does not mean nothing is going on. One barometer of the real value of a dollar is how many dollars it takes to buy an ounce of gold. This is why central banks, commercial banks, and governments in the West fight like hell to keep the price of gold down. Higher gold prices impugn their currencies.

As for economic deterioration, consider the trucks and rail cars piling up in various locations around the country. Or the list of now-bankrupt companies, including Crabtree & Evelyn, Eddie Bauer, Bennigan's, Chrysler, GM, Value City, Sharper Image, Six Flags, Mervyn's, Linens 'n Things, KB Toys, Saab, Nortel Networks, and Circuit City. Consider the empty commerical real estate-- something like 10% of all downtown London office space is now vacant, and there are few strip malls in the US without at least one empty space.

The worst statistic of all, indicative of an economic decline on a par with the Great Depression, is the June unemployment rate, as calculated by economist John Williams of Shadow Government Statistics. He puts the true unemployment rate at

20.6%.

One in five American workers cannot find work. That is one heck of a slowdown. Possibly if we still had a manufacturing base, or if we were not net importers of food, or if exported more than we import, or if we weren't so poor we have to buy shoddy Chinese tchatchke from Wal-Mart, then we might have hopes of a recovery in the not-too-distant future. But that's just wishful thinking.

The worse things get, economically, the less willing other nations will be to loan us money. We've already begun printing money to pay the bills (essentially, counterfeiting our own currency). Once you go a certain distance down that road, there's no turning back, and it only leads to one place: currency collapse. In the usual parlance, that's hyperinflation in the midst of a catastrophic deflation, much as Jim Sinclair has predicted.

Not one or the other, but both.