When Increasing Money Supply Produces Deflation


The Telegraph has come out stating bluntly “ECB’s Mario Draghi has run out of magic as deflation closes in.” The confidence level in central banks I have been warning will decline. This is the prerequisite for the Phase Transition that lies ahead. At  the very core of this entire collapse in confidence in all levels of government lies in the socialist philosophy of Marxist-Keynesianism blended with monetary theory.

supply-demandAll the gold promoters who hate my guts and have been insisting I am wrong, actually share the very same theory with Mario Draghi which has proven to be utterly disastrous. They have both assumed that increasing the money supply will produce inflation. On the surface, it sounds logical under the theory of supply and demand. It completely fails because supply may be definable, but demand is dependent upon human emotion. What happened to the hyperinflation that was supposed to engulf the world with quantitative easing? What both camps of gold promoters and central bankers have assumed using this theory, has only exposed their lack of understanding of both history and how the economy functions.

Roman-Hoard-BritainThe only thing that matters is CONFIDENCE for that is what controls demand. You can increase the money supply, but it depends upon public confidence whether or not that will produce any inflation whatsoever. The 3rd century is the chaotic period of Rome when the money supply is dramatically debased. Yet strangely, this is also the same period that we find tremendous hoards of these debased coins being buried as as the British hoard discovered in 2007 with some 52,000 coins. So why hoard debased money if it is worthless? It seems to be a paradox indeed.

roman-emperors-3rd-centuryBetween 235 and 268AD, there were 26 emperors. The political instability was pervasive. The collapse in confidence that sets off hoarding was the emperor Maximinus I who declares all wealth belongs to the state becoming one of the earliest Marxists if you will. He pays rewards to reveal anyone hiding wealth just as the IRS pays rewards today for reporting rich who also have money they are not revealing. This set in motion hoarding on a grand scale. This is stage one that destroys an economy. The hunt for money today is following this precise course of action.


Once money begins to hoard hiding from government, the process is never easily reversed. The trust and confidence in being able to freely conduct business collapses. As government cannot pay the pensions it promises, the government employees become aggressive.  Today we have unions in New York and Chicago demanding the government tax the exchanges to pay their pensions as teachers and nurses having nothing to do with the exchange. During the 3rd century, trrops began hailing generals to be emperor so they would get paid. Then cities who supported a rival are sacked to pay the troops.


POSTUMUS-AR-RestorationWe see at this time Rome splits into three. So we have separatist movements as well. Here is a coin issued by Postumus, the first Gallic Emperor. Britain, France, and Spain separated from Rome as taxes rose. The reverse shows Postumus extending a hand promising restoration of order and prosperity. So we then have separatist movements as we are also witnessing today.

During this part of the economic decline, people hoard. They lose confidence in government so they hoard whatever money they have even debased currency. This gives way to inflation ONLY when they lose all confidence in government. Then they spend the money for the tangible assets. Before that point, DEFLATION prevails because they do not know what form of government will survive.

All the increase in money supply will not stimulate demand. We are in the throes of deflation as people just worry about tomorrow. When they reach the point and question the existence of government, then they will spend the debased money to convert it into tangible assets.