Some of our readers have expressed a defensive stance to a recent topic of interest. Hermetic Genetics feels it is worth devoting some of our resources to help further education and public awareness of this issue. While we do not condone the argumentative and slanderous nature of their comments and replies, we do feel their points shed light on the greater problem of public awareness.
The economic crisis we currently face has many perspectives. There are those that profit from investments, and will often respond with anger and denial, they will tell you to ignore the topic or that it does not exist. There are those in the working class that strive to maintain their current lifestyles, as inflation decreases their net worth.
And lastly there are those who simply cannot maintain their level of participation in the system. Their income no longer supports their lifestyle. This last group is the majority of the population, and for them this particular topic is the most important issue controlling their economic activity.
Evidence for the problem is all around us, the number of people living under one roof is increasing drastically, and we are experiencing exponential growth in homeless populations in every city in the U.S.
Economic systems are much like ecological systems, in that in order for them to be sustainable, a balance must be maintained.
That balance is the topic we are discussing.
A spiral out of control in either direction could send the entire system into chaos. We exist here, at a pivotal point in history where decisions we make today will affect our future and the future of our children.
When we speak of Inflation/Deflation, the sides of the scale become quite clear, though the solutions are clouded by a lack of understanding of the larger issue at hand. We hear things like “Deflation is bad for the economy”, we ask “why?” and the usual response is “it leads to recession”.
This is the average high school level economics class point of view and one most people are familiar with. This is derived from a single viewpoint, of the basic functions of our economy.
In general, if the price of a product constantly drops, the product becomes worthless and the company producing it can no longer exist.
We watched this happen with Bread, and why a portion of our wheat farmers are paid subsidies (tax money) to NOT grow wheat and keep the price of bread stable.
While this perspective is valid it is only half of the picture. Let’s take a look at the opposite situation: Where a good or service is so overly priced that it limits our access to it.
Home rental prices are just one example, that affects 46 million households. While closely related to profiteering in the Real Estate industry, rental owners unnecessarily increase their prices to match profits of other rental owners in the area. This behavior is irresponsible business ownership and goes against the very principals of the competitive markets and free trade.
In our current status, prices across the board exceed our ability to fill demand. Consumers are strained of the means to actively participate in our economy. When the balance tips in this direction, it can also lead to recession. And we may be seeing signs of that already, although other more expected signs may not be present.
For instance, increases in population can mask decreases in sales. A company may think their sales are increasing just fine, because there are more people buying their product, not realizing the true demand has increased a great deal more. If they were to marginally decrease their price bracket, their sales could increase greatly leading to larger overall profits and more consumers enjoying their product.
Companies and investors are making record breaking profits, this can often be seen as a sign of strong economic growth. Meanwhile a majority of the consumers are experiencing a decline in expendable income, which can be devastating.
Often it has been proposed to increase wages, which simply compounds the problem by increasing operating costs, which again raises prices beyond the affordable level.
The solution, in this situation, is a sudden drop in the prices of goods and services. In this use, price deflation acts as an economic stimulus and returns buying power to the consumers, while strengthening the dollar. The balancing factor becomes the cost of production, instead of the desired profit margin. This is the intended function of our system.
Companies that make responsible decisions help ensure a sustainable economic system.
To be clear, yes, to some this equates to a decrease in “wealth” in real property ownership, as the “value” of the affected goods decreases. Once at a stable level again, the wealth will solidify at its new sustainable value.
The investor response will be an initial sale of excessive real property, which will increase supply and help drive the adjustment of value in each affect market.
Monetary assets will increase in value, as holders of excessive real property shift back towards monetary assets, driving the demand for the dollar.
We feel that maintaining the balance between the costs of goods and services and the available monetary assets in the hands of consumers is essential for economic sustainability, and maintainable debt. Currently we are experiencing a pivotal imbalance, which must be corrected.