In other words, the common man is screwed coming AND going. We can expand the list of economic items inflating or deflating and their negative effects, but readers can no doubt provide many of their own examples. That we are clearly in a biflationary period will be a Eureka moment for many, but after that shock wears off, the question quickly turns to what you can do about it. Fortunately, while the government, the Federal Reserve and the banks like to portray themselves as invincible and in total control of your destiny, you do have the power to at least mitigate the negative effects of their policies. But clearly you will need to adapt your investment and personal living strategies to cover simultaneous inflation and deflation, which is not the same strategy as traditional inflationary hedging alone.

1. Show how your wealth is systematically stolen by BOTH inflation and deflation - Biflation.
2. Define what money is so you can understand the theft process.
3. Show you how your government and bankers must appropriate your wealth through monetary manipulation to stay solvent
4. Give you the financial tools for avoiding that theft.

Despite the seemingly tame headline inflation numbers, consumers never seem to see price declines in certain categories like gas, food, education and health.   They also see continuous erosion in the value of their homes, wages and 401ks. So, it is pretty obvious what we have here--Biflation--instead of inflation or deflation alone. Biflation is a state of the economy where inflation and deflation occur simultaneously.

The price increase of commodities is caused by the increased money flow (via loose monetary policy) chasing them. On the other hand, the growth of economy is tempered with high unemployment and decreasing purchasing power. This has resulted in a greater amount of money directed toward essential items (inflation) and away from non-essential items and things required credit to buy such as house and cars (deflation).

Biflation Stagflation Inflation Deflation Stagflation

In economics, stagflation is a situation in which the inflation rate is high and the economic growth rate is low. It raises a dilemma for economic policy since actions designed to lower inflation may worsen economic growth and vice versa. The term stagflation is generally attributed to British politician Iain Macleod, who coined the phrase in his speech to Parliament in 1965.  In neo-Keynesian postwar macroeconomic theory, inflation and recession were regarded as mutually exclusive. 

Stagflation has proven very costly to eradicate once it starts, both in human terms as well as budget deficits.  The most notable example is when Paul Volker, with Ronald Reagan’s bless, allowed interest rates to climb above 15% to successfully reduce inflationary pressures in the early 1980s.

In fact, Reagan had come to power in part because of the political impact of one measure of stagflation termed the Misery Index.  Derived by the simple addition of the inflation rate to the unemployment rate, the Misery Index reached 21% under President Carter and was used to swing presidential elections in the United States in 1980.  The current 2011 value of the Misery Index using pre-1980 formulas to calculate unemployment and inflation, has reached 25%.

Adherents to the Austrian School maintain that creation of new money ex nihilo (out of nothing) benefits the creators and early recipients of the new money relative to late recipients. Money creation is not wealth creation; it merely allows early money recipients to outbid late recipients for resources, goods, and services. Since the actual producers of wealth are typically late recipients, increasing the money supply weakens wealth formation and undermines the rate of economic growth.

An increase in the money supply rate of growth coupled with a slowdown in the rate of growth of goods increases the rate of price inflation by definition. What we have currently is a fast increase in price inflation (especially fuel and food) and a decline in the rate of growth in the production of goods leading to unemployment. But this is exactly what stagflation is all about, i.e., an increase in price inflation and a fall in real economic growth.

Stagflation is the normal outcome of loose monetary policy. Stagflation is the natural result of monetary pumping which weakens the pace of economic growth and at the same time raises the rate of increase of the prices of goods and services. For loose money policy to work, people would need to be fooled into thinking the increase in money was the same as prosperity, but that game soon wears thin.  Where the stagflation model breaks down is that loose money has also led us to experience massive deflation from credit collapse, most notably in housing (inflation + deflation).  This leads to a refinement in terms called biflation.

Biflation

Biflation (sometimes mixflation or even screwflation) is when the economy experiences both inflation and deflation simultaneously.   The term differs from stagflation in which there is low growth with inflation, and thus is outside traditional economic analysis.  The concept of Biflation was first introduced by Dr. F. Osborne Brown, a Senior Financial Analyst for the Phoenix Investment Group.

During Biflation, there's a rise in the price of commodity/earnings-based assets (inflation) and a simultaneous fall in the price of debt-based assets (deflation).  Insidiously, this is what the Federal Reserve is shooting for with its loose money policies because it:

1)  Bails out banking interests and Wall Street by inflating asset prices.  It also bails out the Federal government by proving free money beyond tax revenues.

2)  Screws Main Street and individuals by devaluing the currency, devaluing their wages, devaluing personal assets like homes awhile conversely inflating the cost of food and energy essentials.

The inflationary aspect of biflation comes when an over-abundance of money is injected into the economy by the central bank. Since essential commodity-based assets (food, energy, clothing) remain in high demand because they are the basis for survival, their price rises with the increased volume of money chasing them. The increasing cost of purchasing essential assets is the price-inflationary arm of Biflation.

The deflationary aspect of biflation comes because the economy is tempered by increasing unemployment, decreasing purchasing power and the decreased velocity of money. Bluntly, no one trusts anyone else in business transactions because of bankruptcies and institutional fraud normalized by the government. As a result, money is directed toward buying essential items and directed away from buying non-essential items. Debt-based assets (homes, high-end automobiles and other typically debt based assets) become less essential and increasingly fall into lower demand. As a result, the prices for them fall due to the decreased volume of money chasing them. The decreasing costs to purchase these non-essential assets is the price-deflationary arm of biflation.

Biflation Leads To Civil Unrest

If you were a statist government and you wanted to crush a rebellion of the lower classes, certainly you would employ Biflation as a weapon of war.  It allows you to support the bureaucracy and the bankers and corporatist hangers on who milk government contracts, while simultaneously economically crushing those civilians leading the rebellion.  As such it is a modern siege tactic, somewhat akin to poisoning wells and food supplies as performed by our ancestors.

Since geographic boundaries have been supplanted by ideological and political boundaries of the state in this age of the Internet and Social networking, Biflation acts as a much more effective economic weapon than burning food supplies and polluting the drinking water; it is sort of the neutron bomb of destructive economic policy.

Don’t expect this biflationary period to blow over anytime soon.  U.S. debt levels are so astronomical that the Federal Reserve cannot increase interest rates without collapsing our system because of the increased interest payment that would be needed to service this debt.  Loose money guarantees inflation, but it also induces debilitating deflation as businesses realize the game is fixed and transactions grind to a halt. Loose monetary policy is the only option left, but it guarantees a slowing economy as money velocity falls.

Consequently, you couldn’t pick a better weapon of war than biflation to demoralize a population and crush its economic base; it is better than even bombing the industrial structure of a country.  If the Federal Reserve and President don’t know this, they are idiots.  If they do know they obviously are at war with the people they are supposed to protect.

Other books by Daxton Brown

Surviving Civil War II

Preparing For Economic, Social & Political Collapse

The first great American Civil War was about ending slavery. Civil War II is about the same thing, except the slave owners in this case are the bureaucrat and entitlement classes who have yoked productive citizens and future generations to a grindstone of $100 trillion of unfunded social liabilities, environmental Gaia worship and bureaucratic strangulation.

This time things are different. We cannot get out of this financial and regulatory black hole unless one of two things happens:

There is no need to spend time arguing about which option will be taken. That which cannot be, cannot be. There is no way to overcome the size of future entitlements except through default by the productive classes on the state's overextended promises. Since option A, the status quo which leaves the current governmental order in place is untenable; we are left with option B, revolt as the path of necessity.

But this book is not advocating a war of freedom, an insurrection, uprisings or anything disruptive of any kind as solutions to our current dilemmas. Instead, the forces of disruption are already upon us and at work, so the nature of this book is entirely defensive and reactive, not proactive. This isn't a call to break into someone else's home, steal their property, rape their women and kill the owner (as anarchists might suggest) in the pursuit of some abstract revolutionary freedom. Instead, this is a call to bolt your door, hide your valuables and defend yourself from others who are now trying to get in to your home to rape, pillage and enslave you. Apparently that is a revolutionary concept to many.

In other words, you can't change the devolutionary course that we are on, except at the margins; the Leviathan of state is auguring in of its own colossal weight. If you are smart though, and hunker down tightly enough, you might just get through this mess with some health and a little wealth intact and be prepared for the rainbow at the end of the storm.

Proceeds from this and other work helps support my ongoing investigation of payoffs to Harry Reid (Harry: Money Mob and Influence)
For a more 'Prepper' oriented book, see Going Galt: Surviving Economic Armageddon

Now Available Through Amazon.com