Monday, April 6, 2009

Deflation Igniting Competitive Currency Devaluation

Ambrose Evans-Pritchard of the Telegraph is suggesting that the next step in the global financial crisis is upon us. Deflation is feeding into the desire upon the part of the national banks of the world to intentionally devalue their currencies. But the weak demand is being caused by cheap, stagnant and falling wages.

Demand is made up of two things...purchasing power and desire to buy the product or service. Desire to buy is still there. Purchasing power is where the problem is at. The credit markets have frozen up. The reason that people used credit to begin with was due to the fact that wages were too low. So the real independent variable in all of this is globalization.

This is why I'm urging people to stop paying on their loans. As long as they keep paying on the loans, the longer they keep the lie going and the longer that wages remain out of sync with costs. The economic expansion has been fueled by a credit expansion that cannot be sustained. We need to pull ourselves away from it. This is the only way we can stop the madness.

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