We took on the conventional wisdom of Gary North here yesterday because we are living in unconventional times. This isn’t the Eisenhower era, for sure, and we don’t expect the dire economic troubles that have come to dominate the news, if not yet our individual lives, to simply melt away over time. Not that North’s vision of the futures is all sunshine and lollipops. He has always been a persuasive doom-and-gloomer who has put his money where his mouth his. He ensconced himself in an exurban fortress in preparation for Y2K, equipping it with redundant utility backups that probably could have kept a small town’s lights burning and water running for months. And he is probably still doing immune-system calisthenics to ward off bird flu. (From what we know of this disease, which in China recently started to kill humans rather than birds, we would be the last to disparage North’s seemingly kooky dedication to preparedness.) 

But on the question of inflation-or-deflation, one or both of which seem all but certain to play out in the years ahead, he is surprisingly non-alarmist. In fact, North is downright skeptical that a serious inflation or deflation lies ahead, even though a debt bubble aggregating into the hundreds of trillions of dollars is being precipitously unwound. We surmise that his reluctance to view this process with alarm stems from his faith, borne of years in academia, that the Fed is sufficiently in control of the money supply to ward off such extreme events as deflation or hyperinflation.

We quite agree that hyperinflation can be avoided, since it would require nothing less than a willful and determined political effort to trigger one off.  Hyperinflations do not occur inadvertently, and to promote one would be tantamount to destroying savers as a class, as well as all of the institutional lenders who have received such tender, loving care since the collapse of Bear Stearns. Deflation, on the other hand, would never occur by design. It is a black hole in the financial system, and its presence is undetectable until the moment we realize we are caught in its gravitational field. And we are, although North, fixated on ultimately meaningless money supply figures, seems oblivious. Every business on the planet go could bankrupt tomorrow, and North would tell us only that bank reserves were unchanged – so, no deflation.

In the past, we have tried to make the case for deflation as clear and compelling as possible.  We would have thought the effort unnecessary at this point, since deflation has been crushing asset values around the world for more than two years. But as long as there are guys around like North, and iTtulip’s stagflationist, Eric Janszen, there is work to be done. To that end, I invite you all to weigh in at the Rick’s Picks forum with your observations concerning the deflationary juggernaut. Earlier, we solicited comments from inflationists with the headline “Calling All Inflationists.” Now, it is time to bury them, so click here to add your comments at the bottom of this commentary.  

***

Information and commentary contained herein comes from sources believed to be reliable, but this cannot be guaranteed. Past performance should not be construed as an indicator of future results, so let the buyer beware. Rick's Picks does not provide investment advice to individuals, nor act as an investment advisor, nor individually advocate the purchase or sale of any security or investment. From time to time, its editor may hold positions in issues referred to in this service, and he may alter or augment them at any time. Investments recommended herein should be made only after consulting with your investment advisor, and only after reviewing the prospectus or financial statements of the company. Rick's Picks reserves the right to use e-mail endorsements and/or profit claims from its subscribers for marketing purposes. All names will be kept anonymous and only subscribers’ initials will be used unless express written permission has been granted to the contrary. All Contents © 2009, Rick Ackerman. All Rights Reserved. www.rickackerman.com 

-- Posted Tuesday, 3 February 2009 | Digg This Article