Financial expert Catherine Austin Fitts has said for years that the economy was not going to crash, but be on a “slow burn.” How long can they make this heavily indebted game last? Fitts says, “Our problem as investors is we don’t know. If you look at all the information we need to make an intelligent assessment, we don’t have access to that information. I have said many times this is a military question. Who has the biggest weapons and who has the ability to deliver force and control? So, we are living with maximum uncertainty. . . . Clearly, we are headed into a new currency world that’s part of a new control system, but the answer is we don’t know when. My fear with many, many commentators is they are underestimating the power and endurance of the system. I am always getting yelled at because people think I am pro-empire. I am not saying I am pro-empire or I am for the things they are doing to keep it going.”
A big US monetary inflation bang brought the euro into existence. Here’s a prediction: It’s death will occur in response to a different type of US monetary bang — the sudden emergence of a “deflationary interlude.” And this could come sooner than many expect.
Around the globe, there was the inevitable run-up of inflation in the aftermath of the Plaza Accord and Volcker’s capitulation, given that many countries (crucially Japan) sought to limit the dollar’s fall against their own countries by following the US monetary lead. The inflation was evident in asset markets and good markets. Out of that new monetary chaos come an onward journey to the next stabilization experiment on both sides of the Atlantic: the “2 percent inflation standard”.
In these two distortions we find the existential vulnerability of the euro and the next US monetary shock will present the severest test yet. The shock is most likely to take the form of a sudden arrival of a “deflationary interlude” in a long and likely intensifying monetary inflation over the long-run beyond.
Specifically, as the virulent asset inflation stoked up in the present global monetary cycle (as always led by the Federal Reserve) proceeds into the final stage of unwind (asset deflation) and recession, there will be a period of overall credit contraction. This will be reflected most likely in the broad money aggregates. Prices and wages could come under some downward pressure, though this is not in itself evidence of monetary deflation.