Posted originally on Dec 30, 2025 by Martin Armstrong |
Some people have a tough time understanding that we are in a massive deflationary spiral; they think that rising prices mean it is inflation and not deflation. Then they mistake stagflation for deflation and wonder why people are spending more on less. They only see prices, not disposable income, and, indeed, not economic growth or unemployment.
Prices rose sharply following the OPEC oil price hikes of the 1970s. Still, the sharp rise in energy prices crowded out other forms of spending, resulting in rising prices that had nothing to do with a speculative economic expansion, and a deflationary contraction they called STAGFLATION occurred, with rising prices and declining economic growth.
If you want to raise NET DISPOSABLE INCOME, lower taxes! Raising wages, as the Democratas believe corporations should do, will cause people to move to higher tax brackets, and soon, all benefits will come into play with these socialistic programs. As always, nobody in government talks about reducing government waste and corruption. The very people who are using these social programs are still paying taxes to the state and federal government.
Household income will soon be defined as everyone living in the same house – kids and all. Perhaps you will have to pitch a tent and make the kids sleep outside with the dog to avoid “household” income tax increases. Deflation is not the lowering of prices; it is the lowering of economic activity that can also include STAGFLATION, which occurs when prices rise but there is no economic growth.
Now, stagflation is not exactly the same as deflation, where the price of goods and services declines. For example, before World War II, the US experienced a massive deflationary environment in which GDP fell by 30% between the crash of 1929 and 1933. A quarter of Americans were unemployed. Imagine 1 in 4 eligible workers on the sidelines. Prices plummeted, and consumers were not spending because they had very little, if anything, to spend. Panics erupted, and people hoarded; the Second World War brought America out of that economic downfall. The public confidence wave began after World War II, because people believed their change in fortune was due to government policies (i.e., FDR’s New Deal) and war victory.
During periods of stagflation, the prices of goods and services increase while buying power decreases. Consumers end up spending more on less. As we are seeing now, for example, retail sales of items such as clothing have declined, but people are spending more on gas, shelter, and groceries. People feel as if they are earning less despite wage increases because their buying power has been drastically reduced. Companies will suffer as consumers spend less, and this has led to workforce reductions. Unemployment during the OPEC crisis of the 1970s was not nearly as severe, but it rose to 7.2% by 1980. Inflation went from around 1% in 1964 to 14% in 1980, and GDP growth went from 5.8% to -0.3% during that same period.
So be very careful. If you only look at prices rising and ignore the fact that your disposable income is declining, you will be in for a very rude awakening. Unemployment will continue to rise in 2026, with the computer anticipating figures surpassing 6%. The trend was set in motion long before automation and AI. Companies simply will not hire when they expect a continued contraction. The ability to borrow at a lower rate is not enticing because those same companies do not want to take on more debt than they already owe. We will not see another Great Depression by any means, but the “soft landing” is merely rhetoric intended to lift confidence.
Centinel2012 