Labor deflation?

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Dwig's picture
Status: Silver Member (Offline)
Joined: Mar 5 2009
Posts: 141
Labor deflation?

I just read a term that was new to me: "labor deflation".  It was in an article by Catherine Austin Fitts about how QE works.  Here's a quote:

Finally, the way the Fed has engineered the Slow Burn to date is to continually offset monetary inflation with labor deflation. It is worth contemplating how much labor deflation will be required to offset QE3 and how sufficient additional labor deflation might be engineered. Ben Bernanke was quite clever to tie QE3 to unemployment. The problem has become the solution, which is the basis for QE-Infinity.

I haven't found a more detailed discussion about the term.  The impression I get is that it means systematically higher unemployment, along with suppressed wages, to avoid the kind of wage-price spiral that can result in (a particular kind of) inflation.  This is just my guess, however.

So, is this an aspect of "QE forever" that merits more e-ink?


Jim H's picture
Jim H
Status: Diamond Member (Offline)
Joined: Jun 8 2009
Posts: 2391
Interesting point Dwig...

I am not sure that this labor deflation is meant to offset price inflation, or whether it's simply another type of Corp. welfare, ala foodstamps, meant to boost the bottom line of Corporations, and therefore the stock market;

but the key point I want to hammer into people is that food stamps are corporate welfare. They actually are not welfare for the workers themselves, who undoubtably don’t have wonderful lives. What ends up happening is that because the government comes in and supplements egregiously low wages with benefits like food stamps, the companies don’t have to pay living wages. So in effect, your tax money is being used to support corporate margins. Even better, many of these folks who get the food stamp benefits then turn around and spend them at the very companies which refuse to pay them decent wages. Who benefits? CEOs and shareholders. Who loses? Society.

gillbilly's picture
Status: Gold Member (Offline)
Joined: Oct 22 2012
Posts: 423
My interpretation

What I interpret her to be saying is that as long as QE is tied to an unemployment goal that cannot be reached, the FED can continue printing indefinitely.

Jim, I'm not sure I follow the logic of your link. So, if we eliminate foodstamps, corporations will come to their senses and start providing a living wage? This is backwards in regard to commerical capital follows cultural capital. Society loses because corporations will not provide a living wage, so the government steps in to help people from starving. Yes, there is the reciprocal external benefit to the corporations (lucky them), but having all those people starving and/or out on the street would be even more costly to society. A change in the corporate culture is what is needed, not taking away the net from those who are already the victims of it.

TechGuy's picture
Status: Gold Member (Offline)
Joined: Oct 13 2008
Posts: 470
We can't really have wage

We can't really have wage deflation since the Federal gov't and most states has a mininum on hourly wages. The Federal Gov't raise the Minium just a couple of years ago and many states had also increase their own Mininum Wage limits that supersede the Fed limit.

 Perhaps hours may get cut, and jobs will move overseas, leading to rising unemployement. Recall during the 1970's Stagflation morphed into high inflation by the end of the 1970's. During Stagflation of the 1970's, Wages remained flat, Unemployment rose and consumer prices rose, which parallels today's economy. Prices for basic needs (food, energy, healthcare, education) are all rising (some are soaring) while wages are flat. The gov't BLS cherry picks items (ie consumer electronics) to show inflation isn't rising.

In order to prevent deflation, which would bankrupt the US since (Federal, State & Local) gov'ts are buried in debt and have massive unfunded liabilities (ie Pensions). The Fed (Reserve) will need to ever increase QE. If we see a wave of Muni defaults (ie Detriot) the Fed will start having to bail them out. I think if we see another big Muni default in the News the Fed will begin Muni Bailouts by purchasing Muni Debt. We also have a student loan bubble that is ready to pop and also will need a Fed Bailout soon.

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