The chart below shows just how leaden stocks have become lately. Since peaking in late 2002, the VIX has fallen to within a hair of ten-year lows and now threatens to turn an already lethargic summer comatose. These days, technicians must burrow down to 15-minute charts to find anything resembling a trend, and the randomness of each session’s opening would vex a svengali. We continue to plug along nonetheless, searching out opportunities that promise to deliver dollars for dimes. Such as in Google, which can be confidently expected to reach an important top near $326 before the August options expire. We were in there swinging yesterday, attempting to buy calendar spreads that will yield dollars for quarters, if not for mere dimes. The temptation in dull markets is to swing for the fences, setting up for a big move in either direction. But I remain skeptical that this summer will produce a big anything. Some of you might recall a headline that appeared here in May,  “Summer Forecast: Bullish Tedium”. So far, unfortunately, the prediction has been on-the-money. Not much we can do about it, though, other than enjoy the summer. Autumn will be here all too soon.

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  In Praise Of Deflation

 My fellow deflationist Jas Jain weighs in below with some novel thoughts on the subject:

The highest real GDP growth in the U.S., based on production data, seems to have taken place during the mostly deflationary years of the 1880s and 1890s. Economic growth may have been as high as 15% a year for two to four years. At the time, inflation was more likely to cause depressions or recessions than deflation. People are generally ignorant of deflation and its effects because they have only known inflation.

Japan’s economic problems have nothing whatsoever to do with deflation. Ordinary Japanese are enjoying the blessings of deflation. Believe it or not, sustained deflation has made Japanese consumers true kings, with kingly choices compared to 20 years ago. They can afford to buy more things with fewer yen. Deflation has been a boon to Japanese merchants by forcing them to become more efficient. In the process they have learned a thing or two from Americans about merchandising.

In any economy, inflation brings inefficiency, waste, dishonesty and corruption. Presently, the U.S. has all in unhealthy quantities. By contrast, Japan and Switzerland have had relatively low inflation since the end of World War II. In those two countries the economic elite, and people in general, are far more trustworthy than in America, England or India. In America, crime and dishonesty pay all too well – far more than in Japan, Switzerland, or many northern European countries. Rule of law, and not of men, you say?

Greenspan a ‘Disgrace’

More than fiat money, it is dishonesty that is at the heart of inflation. Money, the medium of exchange, is based on trust, and nothing shows the naked dishonesty of a sovereign government more clearly than its overt attempts at inflation. Had a German central banker said what Fed governor Ben Bernanke said in 2003 about cranking up the printing presses to avoid deflation, he might have been shot before he could be fired. In America, such rogues get a promotion! Bottom line, Helicopter Ben and Conundrum Al are a disgrace to their profession.

America had Robber Barons in the late 1800s, but also a much more honest economy. Back then, gangsters where known to most as gangsters. Now, they are known as bankers, financiers and CEOs. Sustained inflation has contributed greatly to financial corruption wherever inflation has been promoted. Would fraudulent stock-option giveaways have worked as well in a deflationary economy? Of course not. How would the Federal Reserve rob savers under deflation? Indeed, the Fed needs inflation to succeed in this ongoing swindle.

We Could Do It

Just imagine the wonders of 8%-plus nominal growth and 4%-plus  deflation. We could do it if we were rid of the financial crooks. The first major economy that backs its currency with gold, and declares war on the scrooge of inflation, would draw capital from all over the world. Don’t be surprised if it’s a Communist country. Smart money doesn’t give a hoot about Communism or Democracy (we know that already from how much smart money went to China rather than India, don’t we?); only dumb people do.

Keep in mind that, politically speaking, inflation is a choice, and voters can always tell the crooks to go to hell. Never forget that it is the people who give power to their oppressors! As for me, I’ll take the oppressive taxation of King George III over the thuggery of Greenspan & Co. any day. I know a few in America who would readily agree, and who would join me in voting – and praying – for change.