Deflation Looms  “Deflation is the biggest enemy of debt. Borrow a dollar that buys a loaf of bread and pay back a dollar that buys two loaves is a specification for economic collapse. If deflation as sharp as predicted by So Gen’s Albert Edwards occurs, the possibility of deflation and recovery coexisting are greatly reduced.”  Seeking Alpha  9/13/09

Deflation May Be Down, But It’s Not Out  “Deflation should look under control after new global inflation data are analyzed this week. But the problem is far from over. In fact, the most difficult deflation battles remain to be fought.    FiLife   5/11/09
The greater of Two Evils:  Inflation is Bad, But Deflation is Worse  “Does this matter?  If prices are falling because of advancing productivity, as at the end of the 19th century, it is a sign of progress, not economic collapse.  Today, though, deflation is more likely to resemble the malign 1930s sort than that earlier benign variety, because demand is weak and households and firms are burdened by debt. In deflation the nominal value of debts remains fixed even as nominal wages, prices and profits fall.  Real debt burdens therefore rise, causing borrowers to cut spending to service their debts or to default.  That undermines the financial system and deepens the recession.”   The Economist  5/07/09
TIPs Say We’re Heading Towards Deflation  “Yet, if you believe the yields on US Treasury inflation protected bonds, or Tips, we shall have a 2.2 per cent fall in prices in 2009, a 2.5 per cent decline in 2010 and only flat prices in 2011. If that turns out to be true, the real interest rate burden on even the highest-rated borrowers will be extremely hard to bear.”  Crossing Wall Street/Seeking Alpha  11/20/08
No Real Estate Bubble in Central U.S.   Bubble states versus Central Regions — Click to enlarge
 
 
Producer Prices Post Record Drop As Commodity Prices Slide   “The PPI data showed energy prices posting a 12.8% drop last month, its biggest decline since July 1986, after falling 2.9% in September. Wholesale gasoline prices slid a record 24.9%. Food prices, meanwhile, were down 0.2%.  Prices of passenger cars fell 1.7%, while light truck prices gained 2.6%.  Deeper in the production pipeline, declining prices suggested that disinflationary pressures should continue. Prices of raw materials, known as crude goods, fell a record 18.6% on the month. Core crude goods prices also posted a record decline of 17.0%.”  Wall Street Journal  11/18/08
Why the Fed’s Out of Control  “The Fed’s Real Intentions: The Federal Reserve has dug in their heels in the mightiest bought against deflation since the 1930s. If they fail, we are looking at deflation that would dwarf that seen in the Great Depression… If it hasn’t come clear to you yet, I don’t know what to say. THE FEDERAL RESERVE IS ON THE PATH TO HYPERINFLATION. You need to prepare yourself financially. Things like social security will be worthless in 10 years. $100 of goods will soon buy you what would have been $10 worth. All of these things will weigh on us economically with higher interest rates and double digit unemployment.”  Seeking Alpha 11/2/08
It Might Be Impossible to Stop the Decline of Housing Prices  “There is no ready solution to the decline in housing prices.  We have too much supply unless we are willing to tear houses down. We have very little demand unless we can offer all buyers a massive incentive (like providing a 20%.down payment tax free) – and then you will create another bubble. And to make matters worse, we have entered a recession, creating uncertainty about any major financial decisions – such as buying a house.  My solution is to do nothing because I have become convinced nothing will work. The problem is too big for a band aid solution. The quicker the housing market finds its natural bottom, the quicker the overall economy can begin recovering.”  Seeking Alpha  11/ 9/08
 

Worldwide shipping, a global leading indicator, hits bottom -- Click to enlarge chart.

Deflation Monster Coming as Credit Losses Far Exceed Capital Injections  “As you can see the scenario is nearing its conclusion as we see the final elements fall into place. I believe we have moved beyond fear and are suffering the results of the withdrawal of speculative funds and further corrections and crashes. There are signs that the beginning of the demand collapse has started on a global basis and at a speed that is beyond any Government or Central Bank to react to.  That means a deflationary recession or depression is looming in our near future, caused by those currently feted as the saviours of the capitalist system. In 6 months time I doubt the public will think of the current crop of politicians and central bankers as saviours.  Market Oracle 10/28/08

 Deflation lurks as global demand declines  “From Asia to Latin America, the sense is taking hold that exports – primary sustenance in many economies – are dropping and will continue to do so as the global appetite shrinks. This is spawning fears that such major exporters as China, India and Brazil will dump their products on world markets, pressing prices lower for a range of manufactured goods, reducing incentives for U.S. companies to invest.”  International Herald Tribune 11/2/08

Wasn’t Inflation the Problem?  “When prices surge like they have, the best things is for them to then fall back to a historical norm. That, is deflation. Is anyone going to argue the deflation we have seen at the gas pump is not good for consumers?  Does this mean the process is simple and easy? No. It is quite often painful, especially for those who bought houses at the top of the market. But, it is good for the long run. Berkshire’s Warren Buffett has called inflation the “silent tax”. It decreases the spending power of the consumer with little notice. If that is true (it is) then deflation must be a “silent tax break” as it accomplishes the opposite.”  Seeking Alpha  11/05/08

Fear of Deflation Lurks as Global Demand Drops  “From Asia to Latin America, exports are slowing and should continue to do so as the global appetite shrinks. This is spawning fears that major producers like China and India — which vastly expanded production capacity in recent years — will have to dump products on world markets to keep factories running and stave off unemployment, pressing prices lower.”  NY Times  10/31/08

Hooray for Deflation  “It is true that without further government intervention there would be a deflationary spiral. It is not true that this spiral would be bottomless and wipe out the economy. It would not be a mortal threat to the lives and the welfare of the general population. It destroys essentially those companies and industries that live a parasitical existence at the expense of the rest of the economy, and which owe their existence to our present fiat money system. Even in the short run, therefore, deflation reduces our real incomes only within rather narrow limits. And it will clear the ground for very substantial growth rates in the medium and long run. We should not be afraid of deflation. We should love it as much as our liberty…Now the growth of the welfare-warfare state would not have been possible without inflation,…  Guido Hulsman, Deflation and Lberty  10/2008

Stocks and Commodities Collapse Due to Threat of Deflation Everyone has been taken aback by the speed and ferocity of the implosion and the initial response of politicians and business leaders, which was shambolic and piecemeal, failed to allay fears and arrest the decline. Thus coordinated global action has become necessary, which is what we are now witnessing. Desperate situations call for desperate measures and thus what might have seemed unthinkable a short time ago – extension regulation of the financial industry and widespread nationalization of banks is now looking inevitable. Awareness that a global banking collapse will rapidly lead to a return to the dark ages is a powerful motivating factor and politicians and governments are quickly coming to the conclusion that the only way out of this mess is to shore up banks and guarantee systemic liquidity.” The Market Oracle  10/19/08

Amid Pressing Problems, Threat of Deflation Looms “With the unemployment rate rising rapidly and capital markets in turmoil, “pretty much everything points toward deflation,” said Paul Ashworth, chief U.S. economist at Capital Economics. “The only thing you can hope is that the prompt action of policy makers can maybe head this off first.”  Wall Street Journal  10/18/08

Deflation and Depression: Where’s the Link?  “The long-held view that a general fall in prices, or increase in the value of money, whatever its origin spells unmitigated disaster for overall economic activity and social welfare has begun slowly to give way to attempts to distinguish between “good” and “bad” deflation. The distinction between “corrosive” deflation and deflation that is compatible with healthy economic growth has even penetrated the publications of some of the more enlightened regional Federal Reserve Banks.”  Ludvig Von Mises Institute 8/6/04

Deflation may be main economic policy challenge: UNCTAD  ””The risk of prolonged downturn or depression is far more important, as the slowdown will further reduce commodity prices.”Deflation, not inflation, may actually be the main economic policy challenge,” United Nations Conference on Trade and Development (UNCTAD) said in a report on Tuesday.”  ZeeNews 10/10/08

Can Deflation Be Prevented?  “Deflation, not inflation, is now the greatest concern for the world economy. Over the past year, producer prices have fallen throughout the advanced world; consumer prices have been falling for the last 6 months in France and Germany; in Japan wages have actually fallen 4 percent over the past year. Until the recent crisis prices were falling in Brazil; they continue to fall in China and Hong Kong; they will probably soon be falling in a number of other developing countries.”  M.I.T., Krugman 1999

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