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In a fiat monetary system, there will always be a balancing act between inflationand deflation since the money must be manipulated by the central banking system.It is however, very rare for a fiat system to suffer from deflation because of thevery nature of the monetary system itself and it only occurs when there has been aboom in the business cycle brought about by, once again, central bankingmanipulation of interest rates.Of course, in our "collective" memory, the only thing we can associate deflationwith is The Great Depression however, that memory when compared to our currentdeflationary bout is skewed by the differences between the two monetary systems;the one which existed prior to 1934 and then the one that now exist that cameabout in 1971. It should be obvious, but perhaps not, that a foundationaldifference in the monetary systems will have profound effects on both inflationand deflation; along with economic movements and behaviors. In a way, the worldwas turned upside down in the 30s, not because of The Great Depression, butbecause of the actions taken by our government in concert with the Federal ReserveBanking System.When FDR debased our currency through the confiscation of gold and the revaluationof the official price of gold some very interesting things had to take place,similarly when Nixon cut the ties of gold completely from the dollar some drasticchanges needed to occur. I don't think many understand just what had to take placeand what was involved to completely transform the monetary system of this countryduring these two periods. Basically, everything involved with all the very complexrelationships within the economy and the market dynamics of domestic economy andlater the foreign economy were eliminated during these transformations. It istherefore, impossible to adequately compare any economic disruption prior to thoseevents to those we are now experiencing. While superficial comparisons can bemade, the comparisons end there. There is a completely different dynamic at workunder a total fiat monetary system than was at word during The Great Depression oreven prior to 1971. Indeed, that difference was witnessed during the latter partof the 1970s and into the 1980s when the economy began to experience somethingthat, according to the Keynesian/Neo-Classical "Text-Book" Economists, was notexpected nor did it fit into their econometric models. Stagflation was simply notpossible under their economic ideology.Remember, prior to that time there had never been a period when there was adownturn in economic growth while there was an inflationary monetary event. Thekey, of course, was that the Dollar was no longer tied, in any way, to the onlyanchor of stability it had ever been tied to and that was gold. Historicinflationary charts reveal a great deal about the effects, not only of soundmoney, but also of partial and total fiat money. Interestingly, the ability toinflate without the restraint of gold commodity is extremely evident from thatsingular point in our economic history: 1971. Since that time there has been asteady incline in the amount of fiat money that has been created and perhaps moreinteresting is the steady decline in the overall economic and social health ofthis country.The degree at which our Dollar's purchasing power has been diminished since 1971is absolutely astounding; actually it should be alarming to all of us. The purposeof money is to act as a means of exchange and when the purchasing power of acurrency is drastically debased there is not only an economic consequence, butalso a socio-political consequence to such depreciation. When a drasticdepreciation takes place over a few decades there is a corresponding decline inboth the political and social economy.When a currency, which is a means of exchange, loses its purchasing power iteventually loses its meaning as a means of exchange, confidence is lost and as
 
that confidence in the money erodes so too does the confidence in the politicalstructure occur.I have had people say to me that people are making more money today then they everhave in our history; that is true on the surface and it is perhaps one of thegreatest deceptions of our time. It is not however, the number of Dollars or theface value of those Dollars that matter, it is the amount of goods and servicesthat those Dollars can be exchanged for that provides the benefit. It is theQuality, not the Quantity of money that provides a social benefit.Now, it is important to understand that inflation will eventually destroy the fiatmonetary system and deflation will prolong the system's life span. Inflation eatsaway at the purchase value of fiat money and deflation increases the purchasevalue of each fiat unit. Thus, as most of us know, inflation has eaten away atapproximately 97% of the purchase value of the U.S. Federal Reserve Notes. It hasbeen a type of taxation without any representation whatsoever; that in it would beenough to cause any one of our 18 Century ancestors to rise up in revolution, butwe have been effectively duped by a very clever scheme to deprive this nation ofour birthright.Today, this and other countries find themselves in the situation of crisis becausethat is the belly of the fiat beast; there is a natural inclination toward fiscalabuses, not only on a governmental scale, but on a corporate and individual levelas well. Everyone seems to be wondering just how this crisis came about, theanswer is extremely easy: the fiat monetary system!The world has been under the heavy thumb of the central bankers for the last 37years in particular, prior to that they were restrained by a partial fiat monetarysystem that would only allow them to play in their cesspool up to their collectiveankles. Since 1971 however, they have jumped head-first into the muck and mire ofa total fiat system that has allowed them, along with their political comrades, toscrape up the dregs of a monetary system that will ultimately spell disaster, notonly for the People of this country, but in the process even the central bankerswill suffer as the monetary monster they created and upon which they depend, turnson them with a vengeance and consumes the works of their filthy hands.Now, in a maddening dash toward the fiat abyss, the central bankers are embarkingon a predictable path which will lead to ultimate destruction of the fiat monetarysystem, the only system they have, the only system they place their faith into anddepend upon. Today, although hidden from our view, there is an absoluteunprecedented depreciation of our Dollar taking place and few realize the factthat the "precious" fiat Federal Reserve Note, along with just about every otherfiat note around the world, is being destroyed.To give an example of just how skewed our economy is under a fiat system we shouldlook at savings. Normally, under a sound monetary system a decrease in the savingsrate will translate into a rise in interest rates, regulating credit accordingly,but not so under a fiat monetary system. Savings have been very low in thiscountry, debt has been high and rates are artificially pressured downward by theFED. Everything in the man-made fiat monetary system is completely contrived andcontrary to sound economics; it shows in more ways than we can imagine.Now, Mises, in his wisdom, stated:"There is no means of avoiding the final collapse of a boom brought about bycredit (debt) expansion. The alternative is only whether the crisis should comesooner as the result of a voluntary abandonment of further credit (debt)expansion, or later as a final and total catastrophe of the currency system
 
involved."Now, that one statement holds a vast amount of information that is very pertinentfor us today, for it maps out the only two routes available to the Federal Reserveand this government. Either the Federal Reserve will allow for the economicexhaustion to run its course, abandoning its easy-money-easy-credit fiat policies,or the currency will be destroyed by hyperinflation. The problem of course is thatthey fear deflation because it will lay their plans before the world, exposingtheir inner-workings and fraud for all to see; the other alternative they feelthey can control, but the awakening will be rude and cold. They live under a grandillusion and perhaps they are as deluded as the majority of politicians and thepeople themselves, but they will simply not be able to avoid a reality that isabout to destroy their system.At the moment, the bond markets are draining capital away from the economy, butthat will not remain the case for much longer. The FED is churning out liquidityin record amounts, primarily in the form of direct infusions instead of theroutine fractional reserve system. The massive debt, both public and private, isproving to be more and more difficult to pay off and as interest rates continue tofall, the actual value of that debt increases. The new fiat world order issaturated with malinvestments, stagnate debt and dwindling profits. All the while,the Bond Market sucks productive capital away from sector after sector, creatingits own set of problems for the FED analyticals.We simply don't grasp just how distorted our economic world really is; it isdifficult to understand just what had to take place in the natural order of thingswhen our economy was completely divorced from gold money. Not only did thatdistort the economic order, but the resulting monetary policies, along with theregulatory policies of the government itself, have created an economic environmentthat is surreal and fantastical in its mechanics. There has, through marketmanipulation and fraudulent monetary contortions, been a massive asset mispricing,not only here in the U.S., but around the world.On top of all that, there is a looming monstrosity lurking on the books of theBank of International Settlements, you know the Central Bank of Central Banks, andthat monstrosity is a vast quagmire of debt derivatives that will soon begin tofunction as an enormous black-hole. Since there is little knowledge ortransparency about these "debt" assets, no requirements of disclosure about whatthey are and where they are associated, then there is no possible way to preparefor an eventuality of derivative toxicity streaming into the world's economiccirculatory system. One thing is certain, the Federal Reserve, along with ourTreasury, is no longer just the lender of last resort, it appears that they havebeen forced, by their own past actions, to become the buyer of last resort also.They have the "printing presses" full of paper and ink, ready for what comes theirway.One of the problems, of course, is that under a fiat monetary system there willalways be an excess of fiat paper then there is a demand for it. That soundsstrange, how can there be an excess of money in an economy? The nature of fiat isto run in excess of demand because it must rely upon quantity since it cannot relyupon quality. The economy we see today is exorbitantly inflated by the fiatsystem, so much so that few people understand the illusion that the quantity ofmoney creates. That is one reason that so few people can wrap their heads around areturn to gold money, they look at today's economy and are magically hypnotized bythe face amount of dollars involved and say there is not enough gold to do thejob. However, every dollar of economy value is only valued around 3 Cents or less,it does make a huge difference. Even so, the monetary mechanism of gold money doesnot act the same as fiat money, nor does it require a constant supply to be
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