A Deflationary Dystopia: Alarmist Prophecy or Sobering Reality?

May 26, 2023 | Economic Collapse

If there’s one thing we’ve learned from history, it’s that we haven’t learned anything from history. Especially when it comes to economics. There’s a haunting echo from the past that’s resonating through the marble pillars and mahogany desks of our current financial institutions. It’s a familiar tune, played on repeat: the Long Depression of 1873-79, the Panic of 1893/1896/1907, the Depression of 1920-21, and who could forget the big hit, the Great Depression of 1929-39?

So, what’s the common thread connecting these historical catastrophes? A declining M2 money supply. And guess what, folks? It’s back in fashion! The annual average change in M2 is currently at -2.3%. For those of you who are not economists, that’s the biggest drop since the Great Depression.

But wait, there’s more! It’s not just that our M2 is sliding downhill, it’s picking up speed. We’re looking at a three-month annualised change of -8.3%. To put it simply, our M2 money supply isn’t just falling; it’s in a full-blown nosedive. And history tells us that this isn’t just a fun ride down; it’s more like the start of an economic avalanche.

When M2 is overflowing, we get to enjoy an economic party. It’s like an open bar, where everyone feels rich, prices rise, and life’s good. But when M2 starts shrinking, the party ends, and we’re left with the hangover of a deflationary bust.

In this hangover, our fractional reserve, debt-driven economic system doesn’t work too well. It’s like trying to drive a car with no gas; it’s not going to get you very far. When deflation sets in, the real value of debts increases, leading to economic deleveraging. But hey, who cares about functioning economic systems, right?

We’re also seeing a few “canaries in the coal mine” with recent bank failures. You see, banks are like dominoes. When one falls, others are likely to follow, especially when bank deposits and the M2 money supply continue to shrink. It’s like a deadly game of musical chairs, and we’re running out of seats.

You might be wondering why we’re not looking at an inflation party instead of this deflationary doom. It’s simple really. Our economy, with its infinite wisdom, has decided to tighten the money supply, not expand it. Add a faltering economy and unstable banks to the mix, and you’ve got a cocktail for deflation, not inflation. It’s a cruel irony, isn’t it?

So, the Big Bad Wolf huffing and puffing at our door isn’t inflation, as you might expect, but a deflationary bust. Think of it as quicksand; the more you struggle, the deeper you sink. Ever tried to escape quicksand with a millstone tied around your neck? Welcome to a deflationary economy.

To weather this storm, experts suggest we make changes to our financial habits. In this new world, borrowing is out, and saving is in. Seems like good advice, right? After all, who doesn’t want to pinch pennies while the economy goes down the drain?

In conclusion, the alarm bells are ringing. The M2 money supply is shrinking, our economy is in the danger zone, and banks are falling like dominoes. We’re facing the possibility of a deflationary bust. But hey, we’ve got some great advice, right?

Central banks are supposedly ready to step in, eyes on the monitors, fingers on the buttons. They’re primed to adjust monetary policies, to infuse just the right amount of liquidity, to prevent this train from derailing.

Simultaneously, governments are planning to wave their fiscal magic wands. The recipe is simple – initiate gigantic infrastructure projects, give the green light to hefty tax cuts, and rain cash on citizens. It’s Economics 101 – a prime example of ‘spend now, worry later’. Because if there’s one thing that’s bound to pull us back from the brink of a deflationary abyss, it’s another shopping mall or an extra zero in our bank accounts, right?

Banking regulators also need to play their part in this grand charade. They are expected to spot and fix issues in our teetering financial institutions before they crumble. After all, preventing a crisis is as easy as spotting a needle in a haystack while blindfolded.

As for us, the average Joes and Janes, we have the honour of tightening our belts and adjusting our spending habits. We’re advised to avoid borrowing and increase our savings, because nothing screams ‘economic growth’ like hoarding money under a mattress.

In all seriousness, we’re facing a potential crisis that requires immediate attention and serious measures. The falling M2 money supply and the possibility of a deflationary bust are not to be taken lightly. We need proactive and effective policies from central banks and governments, and a resilient banking system to weather this storm.

However, it’s essential to bear in mind that amid the caution, the alarm, the sarcasm, and the skepticism, there’s a human side to this economic predicament. It’s not just about numbers on a spreadsheet or trends on a chart. It’s about jobs, livelihoods, dreams, and aspirations.

Yes, we need to heed the warnings and act accordingly, but we also need to remember that economies are made up of people. And it’s those people, with their resilience, creativity, and determination, who can ultimately turn the tide, irrespective of the economic winds blowing in their faces.

So, brace yourselves, folks. We’re in for a ride. The alarm bells are tolling, the M2 money supply is drying up, and our economy may well be on the cusp of a deflationary downturn. But remember, economies are cyclical. Storms will pass, and the sun will rise again. With some smart decision-making and collective effort, we can navigate this challenge and emerge stronger on the other side. Or so we hope.