By Tim McMahon, editor Consumer prices have risen at a meager 1.15% over the last 12 months-- despite massive stimulus and growing commitments from the U.S. government. So what's going on? Deflationary forces are strengthening. They are being spurred on by high unemployment rates creating an overwhelming need for consumers to liquidate their assets for cash. As this new economic phase is becoming a reality, expectations are compounding the effects as explained in recent commentary from the world's largest technical analysis firm. "The economy is moving into a critical new phase, an outright deflation in which 'prices fall because people expect falling prices.' Obviously, this … [Read more...]
A Deflationary Double-Dip?
Bring Out Your Dead Last week, the price of gold again broke below its new base at $1,200, and the U.S. stock market was again under strong pressure, due to a confluence of fears, most of which point to a deflationary double-dip. The fears were fanned by disappointment in the just-released early quarterly results, by the latest CPI reports that show inflation continuing to moderate, and by yet another poll revealing faltering consumer confidence. The market is also spooked, no doubt, by notes from the latest Fed Beige Book that make it clear that the Fed is (finally) beginning to understand the entrenched and endemic nature of this crisis. While the notes are written in shamanic … [Read more...]
The Calm Before the Inflationary Storm
I must be getting old. Things seem to change awfully quickly. It seems like just yesterday that gasoline was well over $4.00 a gallon and inflation was 5.6%. It was July 2008 and inflation was the hot topic, everyone was worried about costs climbing exponentially. It seemed like every time I went to the store things cost more. Oil was a speculator’s dream and a car owner’s nightmare. And then came the crash. Oil prices came crashing down along with the stock market and the banks. The big news was deflation. The media was beating the drum about how bad deflation was and how this was the first deflationary period since 1950. Funny, I didn’t hear anyone at the gas station or the … [Read more...]
Why Deflation is in the Cards
By James Stephenson Deflation is not just cost of living, but also declines in assets values and debts. Deflation started in 2008 with declines in stock prices down (40%), houses (20%) and commercial real estate. In a credit crisis, falling prices trigger more selling as we saw in late 2008. As people scramble for cash, falling asset prices actually reduce the supply of potential liquidity or cash. Don't be fooled by the "bear market rally" which will end. As the credit contraction continues, prices will be slashed to stimulate sales at any cost and deflation will be seen in cost of living and consumer prices. The "problem" is too much debt built up over 25 years - up 80% since … [Read more...]