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Deflation fare thee well – Part I: In search of real returns in an unreal world - Eric Janszen, may 2009
Deflation spiral nipped in the bud
So swift and extreme were the Fed’s printing and pumping operations that commodity prices barely registered half the price declines of the previous 2001 to 2002 disinflation cycle, despite a horrific demand crash that the FIRE Economy’s 2008 collapse produced.
Deflation spiral nipped in the bud
So swift and extreme were the Fed’s printing and pumping operations that commodity prices barely registered half the price declines of the previous 2001 to 2002 disinflation cycle, despite a horrific demand crash that the FIRE Economy’s 2008 collapse produced.
Deflation spiral fear mongers, who heckled us relentlessly since 2006, forecast collapsing commodity prices with apocalyptic flourish. Sell oil! Sell metals! Sell gold! The end is nigh!
Even those who bought our argument for inflation as the eventual outcome of the central banks’ debt deflation battle hid behind forecasts over the past year for gold to correct to $600 or even $400 before rising again. These equivocal forecasts, while well meaning, caused investors to wait for a bottom-picking gold price correction that never came. Well-intentioned warnings that gold prices do correct 20% or more in the deflationary down drafts caused by normal economic corrections don’t fly in the kind of bull market in government folly that we are in today, that only occur once in a generation.
Even those who bought our argument for inflation as the eventual outcome of the central banks’ debt deflation battle hid behind forecasts over the past year for gold to correct to $600 or even $400 before rising again. These equivocal forecasts, while well meaning, caused investors to wait for a bottom-picking gold price correction that never came. Well-intentioned warnings that gold prices do correct 20% or more in the deflationary down drafts caused by normal economic corrections don’t fly in the kind of bull market in government folly that we are in today, that only occur once in a generation.
Not only is the 28 year old FIRE Economy collapsing, the entire premise of more than 60 years of central banking has been called into question. Pity the average hard working American whose misguided faith in American market regulatory institutions cost them their retirement savings in the stock and housing markets. They ought to have at least some exposure to gold to hedge their remaining wealth against future losses created by the most concerted effort by government in history to wreck a great nation’s sovereign credit and currency. Hinting they should wait for a drastically cheaper price was unkind.
Yes, the end was nigh in late 2008—the end of deflation, that is. No $400 gold or $20 oil as in 2002, even though this time around after the largest credit bubble in history collapsed global demand for commodities, unlike 2002. Commodities prices crashed, but recently they stopped falling, coincident with a lot of other changes. We think it’s because Bernanke in fact didn’t let “it” happen.
Yes, the end was nigh in late 2008—the end of deflation, that is. No $400 gold or $20 oil as in 2002, even though this time around after the largest credit bubble in history collapsed global demand for commodities, unlike 2002. Commodities prices crashed, but recently they stopped falling, coincident with a lot of other changes. We think it’s because Bernanke in fact didn’t let “it” happen.
Is The Economy Heading Into A Deflationary Spiral?
One year ago, economists were worried about inflation. Now, they are worried about deflation — prices for everything from corn to soybeans to gold are falling. While it might seem like lower prices could be a good thing, unchecked deflation can bring economic activity to a standstill. Economists say the risks of deflation should not be ignored.
One year ago, economists were worried about inflation. Now, they are worried about deflation — prices for everything from corn to soybeans to gold are falling. While it might seem like lower prices could be a good thing, unchecked deflation can bring economic activity to a standstill. Economists say the risks of deflation should not be ignored.
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