pedro’s prefatory remark … not a fan of EGM’s “debtor prices” term, but he appears to mean prices for anything supported by debt based activity (financialization).

EGM: What I Found After Digging Into the Real Research on Deflation

After working through the most serious research on deflation and the frameworks central bankers actually rely on, one thing becomes impossible to ignore…deflation isn’t about CPI going down. It’s about balance sheets cracking under the weight of debt. Once you shift from prices to debt versus debtor incomes, the U.S. and global picture makes far more sense.

Deflation Starts When Debt And Debtor Prices Diverge

The research from Banco Bilbao Vizcaya Argentaria rebuilds Irving Fisher’s old idea for the modern world…deflation begins when the prices that support debt like wages, asset values, and broad output prices stall while nominal debt stays fixed. When these debtor prices flatten or fall, the real burden rises. Defaults pick up, banks tighten lending, collateral softens, spending slows, and the loop reinforces itself.

Their index [EGM always cues off a third party X post, at link] blends debtor inflation with the health of bank credit. When the combined index rises, the system is sliding toward a deflationary setup. Japan’s lost decade fits this perfectly. After 2008, the United States pulled the index down with aggressive bond buying programs, while the European Monetary Union did not, so its index remained elevated.

The takeaway was you don’t get deflation just because consumer prices cool. You get it when debtor prices weaken while leverage stays high.

Whether The Spiral Breaks Or Explodes Depends On How Deleveraging Unfolds

The paper I read from the Bank for International Settlements shows the mechanics. A financial shock alone doesn’t guarantee collapse. If households and businesses can refinance and if investors with clean balance sheets step in to buy cheap assets, the system stabilizes. Losses occur, but the loop doesn’t turn catastrophic.

It becomes dangerous when everyone tries to reduce leverage at the same time or when banks respond to losses by cutting credit. That’s when you get forced selling with falling prices, more losses, credit tightening and more forced selling. It’s the Irving Fisher and Hyman Minsky spiral in real time. Faster price declines actually make matters worse because they instantly raise real debt burdens.

The policy conclusion is either reflate and refinance with bond buying, lower real rates, yield caps or you risk years of balance sheet contraction and stagnation.

How This Maps Onto The United States And The World Right Now

Seen through this lens, the United States is drifting toward similar dynamics of a 1930s style collapse…

• Very high public debt and vulnerable pockets of private debt (commercial real estate, corporate credit).

• High interest rates sitting on top of debt issued in a low rate era.

• Early signs of the exact stress these models warn about: rising delinquencies, asset price softness, slowing wage momentum.

• A massive refinancing wall coming in 2026–2027.

If policymakers keep real rates too high into this backdrop, the system starts looking less like the United States after 2015 and more like the European Monetary Union around 2012 with weak lending, fragile collateral, and nominal growth too soft to support the debt load.

Globally, you can already see different stages of this same pattern: Japan has lived inside it for decades, the European Monetary Union slips toward it whenever growth slows, and China is entering it through property deflation and tightening credit.

My Read

The next phase of the cycle isn’t about whether inflation lands at 2% or 3%. It’s about how countries manage too much debt in a world of weak nominal growth. Modern deflation doesn’t announce itself with a dramatic crash, it shows up as sluggish demand, suppressed yields, repeated credit accidents, and slow motion financial repression.

The United States and much of the world are already on this road. The real question now is whether policymakers move toward reflation early or wait until the spiral tightens.

https://x.com/onechancefreedm/status/1994881875026821561

and

https://x.com/onechancefreedm/status/1994799833106771980 (falling GSR)