Every so often, the macro world splits in two.
Today, we’re watching a fierce debate unfold:
One side sees a disinflationary bust unfolding—tight credit, asset price collapses, and a rising dollar choking global liquidity.
The other warns of structural inflation—too much debt, too little supply, and policymakers with no exit ramp.
Here's what most people miss: both sides are right—just not at the same time.
The Regime Sequence: Disinflation First, Inflation Second
Right now, we are living through a classic disinflationary phase. Financial conditions are tightening, long bond yields have risen, and capital is retreating into safety. Equity markets are breaking down. Growth is slowing. Fear is spreading.
This isn’t new. It’s the opening chapter of a pattern that’s been playing out for centuries. What follows next, more often than not, is intervention.
Because deflation is intolerable in a fiat system. It increases the real burden of debt, creates political unrest, and undermines the tax base.
And that brings us to the deeper point—why disinflationary busts may not only be inevitable, but also strategically useful.
Why Governments May Want a Bust—Before They Reflate
Here’s a hard truth: when a government is running unsustainable deficits, a strong dollar and falling yields become strategic tools.
A disinflationary bust:
Drives investors into Treasuries, pushing yields lower,
Creates political cover for fiscal expansion later,
Allows governments to issue or refinance long-term debt at low cost,
Deflates asset bubbles and resets expectations, making future interventions look like salvation.
In other words, the bust creates the conditions for the government to do what it does best: borrow and spend.
This isn’t conspiracy—it’s cyclical statecraft.
Historical Precedents: We've Been Here Before
United States, 1930s–1940s: The Great Depression brought a deflationary collapse. Then came massive government borrowing, World War II spending, and the post-war inflation surge. The U.S. used yield curve control to suppress interest costs while running massive deficits.
United Kingdom, post-Napoleonic Wars (1815–1820s): After massive war debt, the UK returned to the gold standard, inducing deflation and economic pain. But it allowed the government to extend the maturity profile of its debt at low rates—before the next cycle of inflation emerged.
Post-2008 Global Response: The Global Financial Crisis was a massive deflationary bust. Governments responded with QE, ZIRP, and fiscal stimulus—eventually igniting the asset inflation we saw through 2021.
The lesson? Disinflation gives sovereigns a chance to regroup. Then they reflate.
The Investor's Role in This Dance
So what am I doing?
During the bust, preserving liquidity and accumulating real productive assets—businesses with pricing power, tangible anchors, and capital independence.
In the reflation, owning what benefits from currency debasement: quality equities, real assets, gold, and optionality.
Understand that governments are not neutral players—they are the largest borrowers in the system. Their incentives shape the entire macro terrain.
Closing Thought
The economy is not a tug-of-war between inflation and disin/deflation. It’s a sequence—a strategic rhythm governments have used before, and will use again.
We are just players on that field. The edge lies in seeing the next act while everyone is still watching the current one.
Disclaimer:
The content is for informational, educational, and entertainment purposes only and does not constitute financial, investment, legal, or tax advice. I am not a licensed financial advisor, investment professional, or fiduciary. Any opinions expressed are my own, and should not be interpreted as recommendations to buy or sell any financial instrument or strategy. You are solely responsible for your own financial decisions. Please consult a qualified professional before acting on any information presented here. This article reflects my original thinking and analysis, supported by research and writing tools. All rights reserved.