I am going to start my analysis by listing what we know. Then I am going to proceed to the key survival+ question of cui bono--to whose benefit? Why does answering this question matter?
Because extreme concentrations of wealth lead to concentrated political influence. Thus we are not dealing with a mechanical system here in which the gears of money supply, pricing of risk, and so on are mechanistically processed as if by "invisible hands;" on the contrary, the hands are quite visible, and the feedback between the political and the financial is self-reinforcing.
Which is a fancy way of saying that the Financial Power Elites (corporatocracy, Plutocracy, rentier-financial Elites, etc.) will look out for their best interests. As Harun I. recently pointed out in our ongoing discussion of Power Elites and systemic risk, the hyper-wealthy are no different than the middle class or indeed any other class in this regard: we're all looking out for our best interests.
The difference is the Financial Power Elites are partnered with (or own) the political class of politicos and high-caste apparatchiks which are tasked with keeping the machinery of governance running smoothly to the benefit of the status quo.
Here is the key point I wish to emphasize: we will not "get" inflation or deflation by chance or mechanistic functions, but by a series of policy choices which will be made to benefit the Financial Power Elites and their functionaries in the Central State.
As I noted in Hyperinflation Is a Political Process (October 21, 2010), any policy which is driving inflation can be reversed politically at any time. Thus there is nothing inevitable in the current system except the following:
Demographics and the intrinsic limits of exponentially rising debt and consumption dictate that the status quo will implode at some point in the near future. Historical cycles suggest the point of implosion will occur around 2021-2022, but nothing is written in stone.
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