Wednesday, May 23, 2012

Deflation, the Dollar and the Consumer Price Index (CPI)

Are we entering a deflationary era? Two charts suggest "yes". 

Are we entering an era in which prices stagnate and the purchasing power of the U.S. dollar rises? Our Chartist Friend from Pittsburgh has kindly provided two charts which suggest we have entered such a deflationary period.

Long-time readers know I have presented technical evidence for over a year that the U.S. dollar appears to be in a long-term uptrend, at least relative to other currencies. These charts suggest the uptrend is not just nominal but in purchasing power.

Here is Chartist Friend's commentary on the charts:
After the bombshell disclosure by JPM there is no doubt in my mind that the financial system is in the process of relentlessly deflating. If they by themselves have the tens of trillions of derivative bets that they are alleged to have, then God help us if that bank blows up.As I have pointed out previously, they topped the DJIA on an occult date (May Day) at an occult number (13,330.30) so I also have no doubt that the coming deflation is as much a part of the plan as the reflation off the SPX 666 bottom was.
The CPI purchasing power of the consumer dollar chart is simply an inverse CPI chart, though FRED presents them separately to make sure we are aware that the value of the dollar has been destroyed since the Fed took control of the currency. Since they each have their own chart it's best to view them together. In this way it becomes crystal clear that a rising dollar and deflation go hand in hand, and also that we are entering uncharted economic territory.
Thank you, Chartist Friend, for the eye-opening charts and commentary.

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We are like passengers on the Titanic ten minutes after its fatal encounter with the iceberg: though our financial system seems unsinkable, its reliance on debt and financialization has already doomed it.We cannot know when the Central State and financial system will destabilize, we only know they will destabilize. We cannot know which of the State’s fast-rising debts and obligations will be renounced; we only know they will be renounced in one fashion or another.
The process of the unsustainable collapsing and a new, more sustainable model emerging is called revolution, and it combines cultural, technological, financial and political elements in a dynamic flux.
History is not fixed; it is in our hands. We cannot await a remote future transition to transform our lives. Revolution begins with our internal understanding and reaches fruition in our coherently directed daily actions in the lived-in world.

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