70 THE BiG DROP
investors, but that’s their problem. The Fed’s job is to make the
debt melt away, and inflation is the key.
As I said since 2008, central banks have used interest rate
cuts, quantitative easing, forward guidance, currency wars,
nominal GDP targets, and Operation Twist to cause inflation.
None of it has worked.
But don’t think that will discourage them. You should ex-
pect more monetary experiments in the years ahead. A fourth
round of quantitative easing, so-called “QE4,” perhaps in late
2015 or early 2016 cannot be ruled out. If deflation is strong
enough, central banks may even encourage an increase in the
price of gold by 2017 in order to raise inflationary expectations.
The world is not cooperating with the Fed’s master plan.
We are in a global depression, and the natural consequence of
depression is deleveraging and deflation. Businesses in distress
sell assets at fire sale prices.
This drives the price down and puts other businesses in
distress, which then also sell assets to survive and so on. This is
the famous debt-deflation theory of depression written about
by economist Irving Fisher in the 1930s. That dynamic has
now returned with a vengeance.■ The Difference Between “Good” and “Bad”
Deflation
We also live in a world of rapidly advancing technology, which
is also deflationary because of improvements in efficiency.
Larry Page, the co-founder of Google, recently gave an inter-
view to the Financial Times in which he said, “Even if there’s
going to be a disruption on people’s jobs, in the short term,
that’s likely to be made up by the decreasing cost of things we
need, which I think is really important and not being talked
about... I think the things you want to live a comfortable life
could get much, much, much cheaper.”