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<p>[QUOTE=&quot;InfleXion, post: 1594991, member: 29012&quot;]In the current environment deflation is tied to raising interest rates, not lowering them. New money is printed to buy treasuries, more treasury demand means higher prices, and with bonds higher prices means lower yields. Without this inflationary policy the interest rates would rise due to lack of bond demand, and then borrowing would diminish. In 2008 interest rates finally hit zero, and so we had the crash until QE began, essentially going negative. I would agree that anything other than a slow, controlled deflation would be a shock to the system.</p><p><br /></p><p>Bankers make money on zero interest free money that they loan to us for a premium that will always be higher than the amount they borrow for. Inflation and deflation have nothing to do with that spread, they get privileged borrowing status and can always tack on a premium to whatever the Fed rate is for the rest of us. The cheaper they borrow for, the cheaper they can loan to us, and the more loans that flow which is how they make their money, aside from quote stuffing and LIBOR rigging and whatever else they do. The other thing is, if it&#039;s a multi-talented bank that has say housing mortgages and such, then deflation could make them insolvent because their balance sheet shrinks when assets drop. Inflation gives them higher net worth, higher credit ratings, and greater borrowing capacity.&nbsp; </p><p><br /></p><p>&nbsp; </p><p><br /></p><p>If businesses modify their prices to make however much they need to from the items then inflation or deflation doesn&#039;t impact their spread. It increases a consumer&#039;s ability to purchase, and so the right amount of deflation allows for greater potential for demand and thus greater consumption. </p><p><br /></p><p>We have killed businesses by abandoning free market principles and bailing out too big to fail banks (with inferior business models or they wouldn&#039;t need a bailout), so they don&#039;t have nearly as much competition as before. They got all that free money in 2008 and still wouldn&#039;t loan to small businesses. And I&#039;m not talking about the tiny amount of TARP money they paid back, I&#039;m talking about the $16 trillion gift that came out in a GAO audit. These things are far more damaging than deflation would be, but they have to prop up the derivatives, they don&#039;t have a choice if they want to keep the lid on things. Now, if deflation requires that lid to come off, and the derivatives tank, then yes, it will be far worse, and while it would be causally related it still isn&#039;t the fault of deflation. It&#039;s the fault of whoever put the lid on the jar, whoever thought the bottom of the ocean was a good place to store a beachball. Markets seek equilibrium, and competing with nature is not a smart battle. </p><p><br /></p><p>&nbsp; </p><p><br /></p><p>You are only looking at the last 20 years. If you look at a 500 year silver chart the old high was over $800/oz in 1998 dollars which buy more than 2012 dollars. In ancient times a worker would get paid ~1/10th of an ounce of silver for a day&#039;s labor, but today even the minimum wage would buy 20 times that. Today we have the lowest amount of available silver above ground as anyone alive has ever seen. I could see gold having a premium over platinum, but not silver. But gold is returning to a tier 1 asset so I wouldn&#039;t bet against it either. Platinum may be rare and have supply constraints but it isn&#039;t money according to lore. I would only bet on platinum if I was also willing to bet that the average person was educated about it.&nbsp; </p><p><br /></p><p>I see it like this -- Real physical price is reduced X amount by a paper market with both artificial and diverted demand. Paper price is increased by Y amount due to ability to buy on margin plus or minus Z according to the net long/short position. It would be extremely difficult to use numbers from the last few years to make an accurate determination in this murky environment, which is why I like to take a broader perspective beyond the current temporary way of doing things. I consider the downside caused by X to be far greater than any upside from Y+Z.[/QUOTE]</p><p><br /></p>

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