Why I Believe We Will See Massive Deflation

Image courtesy of Doug Short.


Note the balance between inflation and deflation in the chart between the years 1870 and 1930. For every inflationary episode their is a deflationary one.

Then, in 1933, as the US and many other western democracies went partially off the gold standard, inflation became dominant. By 1971 when Nixon closed the gold window completely, fiat currencies became entrenched, and inflation took off.

Note that there are few deflationary episodes in the 1933 to 2010 period to offset inflation, hence the huge reduction in purchasing power of the US dollar.

My hypothesis is that historically speaking we have an economy that is hugely out of balance. It is reasonable to expect a reversion to the mean soon. This reversion episode may be very sharp (ie: a red downward spike on the chart) and relatively short, or a very long episode, lasting perhaps 10 years or more.

We will have more on this topic after the weekend.
Posting will be light for a few days as I have other commitments.


  1. A must watch


  2. An excellent link Hopium. I will address the inflation deflation debate early next week.

  3. I look forward to your posting....Faithful follower Great Blog and thank you for all you do.

  4. I thought it was the regulation of banks after the Great Depression that banished the boom-bust cycles of the late 19th century? Then in the late 90's the regulations were removed, with predictable results...


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