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Tea party vs. establishment -- we all watch this conflict, perhaps with a touch of amusement.  However, there is a much worse division republicans will have to deal with, the differing objectives of cash and bond holders.

Money seems as if it would be an unmitigated blessing.  Get enough of it and your problems are solved, eh?  Actually, after struggling to accumulate your zillions, you have just changed one set of problems for another.  What are you going to do with it?

Traditionally, cautious folks with too much money have sought to invest it, living off the returns of bonds and other safe, moderate-return instruments.  With chronic low interest rates, this type of investment is not the cash cow it used to be, so bond buyers are always boosting for higher interest rates, which can often be the result of inflation.

Contrarily, facing chronic low bond yields, many highly moneyed investors have been opting instead for cash reserves, and various Caribbean islands are heavy with them.  This segment of the investment class has very different objectives than the bond holders do.  Low interest rates or even deflation would suit their purposes.

Since almost no one alive now has actually witnessed deflation, it might need a bit of highlighting.  This shift in the buying power of money was a large part of the depression of the thirties, and it had several interesting characteristics.  It can have a number of causes, but the most common one is the shrinkage of the money supply.  When this occurs, the buying power of money increases each year, which is great for those who hold money or one of its equivalents.  This same shift is ruinous for those who have debts since each year it is harder to raise the money for payments which carve bigger and bigger chunks out of their buying power.  The worst thing about deflation is that it can become self sustaining once established and very difficult to reverse.

So here we have two well endowed economic blocks within the republican party with completely opposite objectives.  The front line of their conflict is at the Fed which so far has supported the cash holders, keeping interest rates low and verging on deflation.  But the bond buyers are a powerful group.  The U. S. government is largely financed by selling bonds.

What should any progressive looking to get a leg up on conservatives do about this information?  Awareness is a start.  Most Americans have very little consciousnesss devoted to matters like economics, so understanding the situation is an important first step.

Maintaining and promoting dissention between these two groups of investors may be tempting.  Conflict within the ranks of the enemy is usually a good thing, but here we need to be careful.  A serious misstep at the inflation/deflation boundary can have national if not global repercussions.

As long as the differing objectives of such well moneyed conservatives remain at odds, we will hear a muffled uproar over interest rates and Fed policy from time to time.  In these clandestine battles, progressives should consider making sure neither side wins.

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Comment Preferences

  •  Tip Jar (8+ / 0-)

    Canem Praeteri, Cave Modo Hominem. (Never mind the dog, just watch out for the human)

    by T C Gibian on Sat Jul 12, 2014 at 09:58:33 AM PDT

  •  Deflation (3+ / 0-)
    Recommended by:
    allie4fairness, Bluefin, chmood

    was the primary, structural force that drove the original American Populist movement.   It's the nature of farming to be rather permanently in debt.  Two things happened in the years immediately following the Civil War.  (1) Millions of Americans acquired farmland in the west, either through the Homestead Act or the vast land grants to the railroads, which sought to populate their rights-of-way and create freight businesses for themselves along their routes, and (2) the abandonment of the fiat "greenback" currency of the Civil War years and the reinstitution of the gold standard..  The first created a vastly increased demand for debt, the second made debt ever more expensive.  The millions of easterners and immigrants that believed that a western farm would give them financial independence soon found that their new debt ate up an ever-increasing share of their income from the farming, and found their ability to generate income sharply limited by the freight rates charged by the monopolistic rail lines running through their areas.    Thus as debt peonage increasingly became their lot, eastern banks, railroads and the gold standard became the enemies of the new "Farmers Alliances" that sprung up, mostly in the midwest, but also as a political opposition in the previously one-party south.  The death blow to the Populist movement was the midwestern-driven fusion with the Democrats, which made sense in Kansas and Idaho, but was a disaster in Georgia and North Carolina, delivering the Populists there into the hands of exactly those elites that they had risen against and offered the only meaningful opposition to.

    Pay no attention to the upward redistribution of wealth!

    by ActivistGuy on Sat Jul 12, 2014 at 10:32:44 AM PDT

    •  The deflation of the late 1800's. . . (2+ / 0-)
      Recommended by:
      allie4fairness, Bluefin

      was not monetary deflation as described in blog but was caused in great part by expansion of production, causing a lowering of prices for agricultural commodities.  Eastern banks compounded the misery.

      It is important to distinguish these two types of deflation.  One is a serious calamity, the other perhaps only a consequence of competition between producers.  

      Price deflation is an unavoidable result of product improvement, quality or quantity.  We would not consider the declining prices for cell phones to be deflation in the monetary sense because the lowering price affects primarily only buyer and seller.

      Monetary inflation affects everyone.

      I appreciate the background on the Progressive movement.  The struggle is familiar, and some of the methods and achievements of this movement may prove instructive now.

      Canem Praeteri, Cave Modo Hominem. (Never mind the dog, just watch out for the human)

      by T C Gibian on Sat Jul 12, 2014 at 10:54:02 AM PDT

      [ Parent ]

      •  "The Crime of '73" (0+ / 0-)

        was how the return to the gold standard was known among the Populists.  That was the overwhelming consensus of the principals in the era in question as to the cause of deflation.  You may disagree from our contemporary perspective, but it is absolutely how the people of the time understood the problem, even the bankers didn't deny it.

        Pay no attention to the upward redistribution of wealth!

        by ActivistGuy on Sat Jul 12, 2014 at 11:40:47 PM PDT

        [ Parent ]

  •  To somewhat simplify, it all comes down to greed. (3+ / 0-)

    It happened again in the lead up to the Dust Bowl, every scrap of land was put into wheat production.  Farmers were making lots of money so they bought more and more land.  Then a drought and bad farming practices devastated farmers and most of the country.
    That is why we have so many republicans in California, descendants of the Okies who fled the Dust Bowl.

    We are not powerless!! "Activism is the rent I pay for living on this planet."– Alice Walker

    by nocynicism on Sat Jul 12, 2014 at 03:10:48 PM PDT

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