All hail Deflation!

Getting sad at all the spendthrift bills concocted by Pelosi/Reid/Obama to prolong and deepen the recession? Yes, me too, but there are ways to cope. One great way is to embrace the bane of FDR, that blessed deflation.

Blessed deflation? You bet. If you look at consumer prices from 1800 to today (provided by Harry Browne in one of his books), you'll see that price variations really only became acute when government did something profoundly stupid, like starting a war, changing the monetary standard, or chartering a federal bank. When government stopped the stupid act, inflation stopped, ordinary deflation occurred, the economy recovered, badly thought out loans were written off, and badly chartered banks failed. Investors learned not to put their money in banks that made loans to new cannon manufacturers, and a powerful disincentive existed for war and wasteful government spending.

See why government types dislike deflation now?

Enter the Fed in 1913, and the first postwar period to not feature a period of deflation. Yes, the Fed kept things going for a few years, but we do remember the end of that story, even if our politicians don't. So how do we get some deflation going?

You can start by paying off debt at the highest responsible rate--keeping just enough in your bank accounts to make it a few months. In doing so, you work against the fractional reserve "multiplier" effect of deposits--each dollar you remove from savings and use to pay off debt removes $10-25 from the overall money supply. Remember, the proper definition of "deflation" is "reduction in the money supply," not "drop in prices." The effect (prices) follows the cause (money supply).

Going further, urge your state, city, and do on to refuse "spend-u-more" dollars. Provide evidence that FDR actually extended the Depression, write letters to the editor, protest if need be. Do your best to refuse government money for unemployment and so on, and encourage friends to reject it as well. Government cannot spend money if people don't take it.

One interesting way to do this; buy grass fed beef. No kidding--you can help cut out billions in subsidies for maize this way while improving heart health and water quality at the same time. (my father-in -law raises it--leave a note if you'd be interested in getting some at a pretty good price if you're in MI or MN)