The Rising Threat of Deflation

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-------- Original Message --------

Subject:	FWC: The Rising Threat of Deflation
Date:	Wed, 7 Jul 2010 18:46:01 -0700
From:	Jas Jain

The Rising Threat of Deflation

That is music to my ears and annoying fire-alarm sound to the Crooks and their agents. I just love deflation! There is a coterie of born-and-bred American charlatans who have been selling inflation scare to the public for years (one of these idiots, Martin Weiss, has annoying commercial on financial TV several times a day). Deflationary depression is baked in the US econ-cake. Bernanke can do nothing about it despite all his false promises. Markets are more powerful than Bernanke, Obama and Summers combined.

Jas

-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-

http://www.aei.org/outlook/100971

 

The Rising Threat of Deflation By John H. Makin

As we enter the second half of 2010--the "postcrisis" year--while markets have been obsessed with Europe's debt crisis, they have failed to notice potentially more ominous developments. The United States and Europe are heading toward--and Japan already suffers from--deflation, a classic prolonger of crises that boosts the real burden of debt and crushes profit margins.

U.S. year-over-year core inflation has dropped to 0.9 percent--its lowest level in forty-four years. The six-month annualized core consumer price index inflation level has dropped even closer to zero, at 0.4 percent. Europe's year-over-year core inflation rate has fallen to 0.8 percent--the lowest level ever reported in the series that began in 1991. Heavily indebted Spain's year-over-year core inflation rate is down to 0.1 percent. Ireland's deflation rate is 2.7 percent. As commodity prices slip, inflation will become deflation globally in short order.

Meanwhile in Japan, while analysts were touting Japan's first-quarter real growth rate of 5 percent, few bothered to notice that over the past year Japan's gross domestic product (GDP) deflator had fallen 2.8 percent, reflecting an accelerating pace of deflation in a country where the price level has been falling every year since 2004. As of May, Japan's year-over-year core deflation rate stood at 1.6 percent.

The Paradox of Crisis and Deflationary Pressure

The financial crisis of 2008 prompted aggressive monetary and fiscal easing by most governments. In the United States, the Federal Reserve cut its overnight lending rate to zero and tripled the size of its balance sheet during the year beginning in January 2009, during which time Congress and President Barack Obama enacted a substantial fiscal stimulus package.

 

By later this year, persistent excess capacity will probably create actual deflation in the United States and Europe. 
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