The Aftershock Investor: A Crash Course in Staying Afloat in a Sinking Economy by David Wiedemer, Robert A. Wiedemer, Cindy S. Spitzer
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other countries. It doesn’t all come to the United States.
The decline in foreign investment in the United States would not have as much of an impact if there hadn’t been so much inflow of foreign capital into our economy earlier. On the way in, that extra money helped pump up our bubbles, and on the way out, the drop in foreign investment will help pop the bubbles as well.
The combination of rising inflation and rising interest rates will pop the huge dollar and government debt bubbles, and will pull down what is left of the already falling real estate, stock, private debt, and consumer spending bubbles. With all our bubbles fully popped, the global Aftershock will begin.
Even if that is not something you can currently let yourself believe is possible, you must at least admit that rising inflation and rising interest rates will certainly not be good for any economic recovery. And once you let yourself see the bubbles, you will realize that, under these conditions, these bubbles cannot last.
Frankly, even without rising future inflation and rising interest rates, these bubbles cannot last. Why? Because they are bubbles! Bubbles don’t last forever. What goes up must eventually come down because their rise was not driven by real productivity growth and other fundamental economic drivers. It was driven by speculation and a whole lot of borrowed and printed money.
Despite these facts, CW will try to deny, ignore, and happy-talk our way through an increasingly obvious falling bubble economy. But ask yourself this: How many CW-type analysts and economists predicted or anticipated our current economic situation? This is how CW tries to ignore the change. But, of course, that doesn’t stop the reality of the current and future economy.
This enormous resistance by so many sophisticated economists and financial analysts to changing their CW economic outlook, even in the face of overwhelming evidence, is highly unusual in U.S. history. Although there has certainly been cheerleading in the past and blatant ignoring of reality by economists and financial analysts, this current period stands out as an extreme level of resistance to facing facts. CW has become blind as a bat, while insisting its eyes are wide open.
Key to the CW position that nothing too bad will happen next is their belief that inflation poses no threat. Some CW analysts (and even some bears) have gone so far as to say that future deflation , not inflation, is the real problem.
The Myth of Deflation Is the Last Refuge of the Deniers
Vital to the CW argument against our analysis is the wrong idea that instead of inflation, we are about to enter into a period of deflation. The idea that deflation is the real threat, not inflation, is the last refuge of the deniers. They want to deny that printing money is a problem. They want to be able to print all the money we need without any consequences, without inflation. So, instead, they say they are worried about deflation.
Let’s start with a definition of inflation and then dissect the deflation arguments one at a time. As Nobel Prize–winning economist Milton Friedman famously stated:
“Inflation is always and everywhere a monetary phenomenon.”
By using the word monetary , Friedman meant that inflation is a direct result of increasing the money supply. Increase the money supply, relative to the size of the economy, and you get inflation; decrease the money supply and you get deflation.
Wrong Deflation Argument #1: Prices Are Falling
A lot of people think that falling prices equals deflation. That is not true. Prices can fall when there is a change in supply and demand: falling demand and/or rising supply naturally reduces prices. That is not deflation. Deflation is caused by a contracting money supply and inflation is caused by expanding the money supply faster than the economy grows. We have a massively expanding money supply, and we are going to get significant future inflation, not deflation. Making
The decline in foreign investment in the United States would not have as much of an impact if there hadn’t been so much inflow of foreign capital into our economy earlier. On the way in, that extra money helped pump up our bubbles, and on the way out, the drop in foreign investment will help pop the bubbles as well.
The combination of rising inflation and rising interest rates will pop the huge dollar and government debt bubbles, and will pull down what is left of the already falling real estate, stock, private debt, and consumer spending bubbles. With all our bubbles fully popped, the global Aftershock will begin.
Even if that is not something you can currently let yourself believe is possible, you must at least admit that rising inflation and rising interest rates will certainly not be good for any economic recovery. And once you let yourself see the bubbles, you will realize that, under these conditions, these bubbles cannot last.
Frankly, even without rising future inflation and rising interest rates, these bubbles cannot last. Why? Because they are bubbles! Bubbles don’t last forever. What goes up must eventually come down because their rise was not driven by real productivity growth and other fundamental economic drivers. It was driven by speculation and a whole lot of borrowed and printed money.
Despite these facts, CW will try to deny, ignore, and happy-talk our way through an increasingly obvious falling bubble economy. But ask yourself this: How many CW-type analysts and economists predicted or anticipated our current economic situation? This is how CW tries to ignore the change. But, of course, that doesn’t stop the reality of the current and future economy.
This enormous resistance by so many sophisticated economists and financial analysts to changing their CW economic outlook, even in the face of overwhelming evidence, is highly unusual in U.S. history. Although there has certainly been cheerleading in the past and blatant ignoring of reality by economists and financial analysts, this current period stands out as an extreme level of resistance to facing facts. CW has become blind as a bat, while insisting its eyes are wide open.
Key to the CW position that nothing too bad will happen next is their belief that inflation poses no threat. Some CW analysts (and even some bears) have gone so far as to say that future deflation , not inflation, is the real problem.
The Myth of Deflation Is the Last Refuge of the Deniers
Vital to the CW argument against our analysis is the wrong idea that instead of inflation, we are about to enter into a period of deflation. The idea that deflation is the real threat, not inflation, is the last refuge of the deniers. They want to deny that printing money is a problem. They want to be able to print all the money we need without any consequences, without inflation. So, instead, they say they are worried about deflation.
Let’s start with a definition of inflation and then dissect the deflation arguments one at a time. As Nobel Prize–winning economist Milton Friedman famously stated:
“Inflation is always and everywhere a monetary phenomenon.”
By using the word monetary , Friedman meant that inflation is a direct result of increasing the money supply. Increase the money supply, relative to the size of the economy, and you get inflation; decrease the money supply and you get deflation.
Wrong Deflation Argument #1: Prices Are Falling
A lot of people think that falling prices equals deflation. That is not true. Prices can fall when there is a change in supply and demand: falling demand and/or rising supply naturally reduces prices. That is not deflation. Deflation is caused by a contracting money supply and inflation is caused by expanding the money supply faster than the economy grows. We have a massively expanding money supply, and we are going to get significant future inflation, not deflation. Making
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