Prior to the Industrial Revolution, there was virtually no "Middle Class"; there were the Wealthy and the Poor, with little in between. The poor lived miserable subsistence lives while the wealthy had fine clothes, servants, and good food. You may have been taught that the "Middle class" was the result of Unions or Government policies, but before any of that, there was the Industrial Revolution, which resulted in massive productivity improvements. These new factories needed laborers, and although they paid a pittance compared to today, they still paid much more than you could make as a subsistence farmer. So, a massive migration began, bringing people into the cities to work in the … [Read more...]
AI Is Deflationary But Its Energy Demand Could Fuel Inflation
Artificial intelligence is being heralded as one of the most transformative technologies of all time, with the potential to radically improve productivity, reduce costs, and drive economic growth. But as the AI revolution unfolds, a paradox is emerging: AI has deep deflationary potential, yet its explosive demand for electricity and infrastructure introduces inflationary pressures. Understanding these contradictory forces is essential to understanding how Artificial Intelligence could shape macroeconomic trends in the coming decade. The Deflationary Power of AI AI’s primary deflationary force lies in its ability to automate tasks across every sector of the economy — from legal document … [Read more...]
Which is Worse, Inflation or Deflation?
It all depends on the type of Deflation. There are actually two types. The deflation that most people are familiar with is the result of a market collapse such as we saw in 2008. Prices of assets (like stocks) fall because of some sort of “accident,” such as the mispricing of mortgage-backed securities and derivatives. When assets lose value quickly, panic sets in, leverage must be liquidated, causing other assets to be sold, creating a "snowball effect" causing a "risk-off" mindset. Consumers cut back on unnecessary purchases, businesses lay-off workers, unemployment skyrockets, and the economy stagnates, etc. But looking even deeper, we find that the “mispricing’ was caused by too much … [Read more...]
5 Countries Most at Risk for Deflation
People often confuse Deflation and Depression perhaps because in the 1930s the U.S. experienced a lot of both of them at the same time. This combined with the similarity in the sound of the words tends to compound the confusion. But they are not synonymous, it is quite possible to have an inflationary depression as the Hyperinflation in Weimar Germany from 1919-1923 shows. Just as inflation is more than just rising prices, deflation is more than just "falling prices". In both cases, the terms "inflation" and "deflation" actually refer to the macro "cause" while the change in prices is simply the "effect". Unfortunately, lazy speech tends to confuse the "cause" with the "effect". So when … [Read more...]
Central Banks Are Pushing the World Towards Deflation
With the entire world struggling to ward off global deflation, it is prudent to understand why the current actions by the Central Banks are not heading in the correct direction. The massive amount of Quantitative Easing by the Central Banks, globally, have not been converted into inflation as was earlier anticipated. This article will shed light on various aspects leading to deflation. Investopedia defines ‘deflation’ as “a general decline in prices, often caused by a reduction in the supply of money or credit. Deflation can be caused also by a decrease in government, personal or investment spending. The opposite of inflation, deflation has the side effect of increased unemployment since … [Read more...]
The Devaluation Derby
The 1930's had massive deflation on a world-wide scale. Making it the worst deflationary event in living memory. This has affected the thinking and even the language of everyone from economists, to politicians, to the media, as new words like devaluation, disinflation, low inflation, even negative inflation are created to avoid having to say what they really mean and that is the big "D"... DEFLATION. But no matter how you say it, the fact is, deflationary forces are building around the world. During the first quarter of 2015 the U.S. saw slight deflation on an annual basis. And despite historically low interest rates and high economic stimulus, in September 2015 the Financial Times posted … [Read more...]
Betting on Deflation May Be a Huge Mistake. Here’s Why…
Although this site is called Inflation Data for the last several years we have been talking a lot about the big "D"... deflation. Strictly speaking, the only true deflation (inflation rates below zero) occurred in 2009 and then very briefly in 2015. See Annual Inflation Rate Chart. But as the chart shows the overall trend since the peak in 1990 has been down with the occasional spike upward. Since the peak in September 2011 however, the trend has been sharply down (falling inflation rates = disinflation) until it bottomed in April 2015. Since then inflation has turned up and has crossed above its moving average. So does this mean that we are in for a bout of inflation? Possibly. … [Read more...]
Europe in Deflation: Got (cheap) Milk?
Why falling food prices are not a boon for Europe's economy By Elliott Wave International In the early 1990s, two simple words from a genius ad campaign radically transformed the way the U.S. consumer saw it: "Got Milk?" Suddenly, the narrative changed from an obligatory drink you had to finish as a kid, along with eating your vegetables -- into a sexy, funny, and above all desirable treat for all ages. Until now. In Europe, in 2015, famous celebrities donning milk mustaches no longer light the public's passion for lactose -- as prices for milk have spoiled. Here, a September 8, 2015 CNN Money article captures the curdled state of affairs: "So much milk is sloshing around the … [Read more...]
Is Global Depression and Deflation Underway?
In an article we published on August 16th, called Markets Crashing, Gold Rising the author said, "The probability of U.S. interest rate hikes this fall is now falling a rock. We are once again hearing the familiar call from Keynesian economists, including Paul Krugman, for more stimulus and debt. They acknowledge the trillions already printed and borrowed haven’t worked – but say it is only because it wasn’t nearly enough." As a matter of fact, Krugman has been beating the same drum since 1998 when he said, "The clear and present danger is, instead, that Europe will turn Japanese: that it will slip inexorably into deflation, that by the time the central bankers finally decide to loosen up … [Read more...]
World War D—Deflation
In today's article John Mauldin looks at the "Big D" deflation plus the difference between the out look and time-frame of the average investor and that of the professional money manager. He also looks at the difference between "secular" and "cyclical" bull and bear stock markets. We also have an article by Jawad Mian entitled "A Little Less Deflation, A Little More Reflation, Please". Enjoy! ~ Tim McMahon, editor Thoughts from the Frontline: World War D—Deflation By John Mauldin Everywhere I go I’m asked, “Will there be inflation or deflation? Are we in a bull or bear market? Is the bond bull market over and will interest rates rise?”The flippant answer to all those questions is “Yes.” … [Read more...]