Sightings of references to the term "deflation"

[GRG55]

Re: Sightings of references to the term "deflation"

i'd like this thread to be dedicated to observations of the word "deflation" in the writings of financial journalists, MSM, speeches of politicians, and so on. i would exclude well known deflationista's like mish. on these grounds i'm also leaving off kevin depew at minyanville, who's been writing about deflation for some time.

my goal is to see if my prediction of a "deflation scare" comes true. as the deflation meme spreads, we can expect commodities to bottom. when and if the word "deflation" is on the cover of time or newsweek, we'll know we've nailed the bottom...

Still churning the D-word out...

...the first four paragraphs of this Bloomberg item include "sustained deflation", "incipient deflationary threat", "risk of further deflation" and "the possibility of a deflation trap". Takes some talent to pack all that in to such a small space.

Fed Should Expand Supply of Money, Bullard Says

Feb. 17 (Bloomberg) -- Federal Reserve Bank of St. Louis President James Bullard said the U.S. faces a risk of “sustained deflation” and called on the central bank to avert a decline in prices by expanding the money supply.

The prospect of deflation is a “significant downside risk” and may increase home foreclosures, Bullard said in a speech today in New York. Adopting a target “rapid” growth rate for the monetary base, which includes money in circulation and banks’ reserve deposits with the Fed, should “head off any incipient deflationary threat,” he said...

...“By expanding the monetary base at an appropriate rate, the FOMC can signal that it intends to avoid the risk of further deflation and the possibility of a deflation trap,” Bullard said in prepared remarks to the New York Association for Business Economics...

[FRED]

Re: Sightings of references to the term "deflation"

Still churning the D-word out...

...the first four paragraphs of this Bloomberg item include "sustained deflation", "incipient deflationary threat", "risk of further deflation" and "the possibility of a deflation trap". Takes some talent to pack all that in to such a small space.

Fed Should Expand Supply of Money, Bullard Says

Feb. 17 (Bloomberg) -- Federal Reserve Bank of St. Louis President James Bullard said the U.S. faces a risk of “sustained deflation” and called on the central bank to avert a decline in prices by expanding the money supply.

The prospect of deflation is a “significant downside risk” and may increase home foreclosures, Bullard said in a speech today in New York. Adopting a target “rapid” growth rate for the monetary base, which includes money in circulation and banks’ reserve deposits with the Fed, should “head off any incipient deflationary threat,” he said...

...“By expanding the monetary base at an appropriate rate, the FOMC can signal that it intends to avoid the risk of further deflation and the possibility of a deflation trap,” Bullard said in prepared remarks to the New York Association for Business Economics...

The smart money today, as it has since 2001, is not buying the talk.

This may be worth a re-read: The Hard Way or the Harder Way

[Uno]

Re: Sightings of references to the term "deflation"

"deleveraging" is close.

The precise economic term, is "despeculation", which I just invented, and includes deleveraging plus other risk adjustments away from years of speculation in all types of assets.

We may see inflation but we could also just see "savings & investment" which is a related set of terms foreign to most people in the modern world.

[gwynedd1]

Re: Sightings of references to the term "deflation"

Calling a depression deleveraging does not change the fact that is a depression. Its a depression. Since housing has created an enormous amount of money how is it going to support new loans of the magintude necessary? Housing is not going up. Debts continue to be paid down while new loans are not happening. The rise in M3 are just panic credit lines that will not be used or shutdown. Most money is spent on housing and transportation and that is way down. Naturally since food and the basics do not grow by finance we will not see prices change much. Still food is very much tied to oil. I don't buy into front sided hyper-inflation at all and I can't even think of a single instance of it. Hyper inflation happens after capital is destoyed whole sale by war, or depression and money is printed in a desperate attempt to buy what isn't there.
When enough capital shuts down and gives up for good then we may see inflation but unless something changes as of now I see nothing but stagnation ahead. As of now if China and Japan decided to stop selling to us what does it matter? We are not buying now.

[GRG55]

Re: Sightings of references to the term "deflation"

Here's that "D" word again. This time from China...

China Sees ‘Moderate’ Use of Rates; Biggest Cuts May Be Over

Feb. 23 (Bloomberg) -- China’s central bank said it will make “moderate” use of interest rates this year, signaling that it may be less aggressive in cutting borrowing costs after five reductions in 2008...

...The economy faces a “relatively large” risk of deflation in the short-term, the central bank said, while cautioning that a rebound in inflation was still possible in the long-term...

[Jim Nickerson]

Re: Sightings of references to the term "deflation"

i'd like this thread to be dedicated to observations of the word "deflation" in the writings of financial journalists, MSM, speeches of politicians, and so on. i would exclude well known deflationista's like mish. on these grounds i'm also leaving off kevin depew at minyanville, who's been writing about deflation for some time.

my goal is to see if my prediction of a "deflation scare" comes true. as the deflation meme spreads, we can expect commodities to bottom. when and if the word "deflation" is on the cover of time or newsweek, we'll know we've nailed the bottom.

fred, if you find this worthwhile, perhaps you'd make this a sticky.

for my first example, randall forsyth of barron's has begun mentioning deflation lately. today's example:

The Desperate Dash for Cash

By RANDALL W. FORSYTH

As deflation takes hold, debt is out and cash is king. That means everything but Treasuries is for sale.

It's ten months now since jk began this thread.

Here as a few "sightings," though not all, that I've crossed in the past couple of weeks.

http://seekingalpha.com/article/1459...ooking-crowded

http://www.nakedcapitalism.com/2009/...len-tells.html

http://www.arpllp.com/core_files/The...ter%200709.pdf

http://www.marketwatch.com/story/dow...GU6_A43r5pI4Og

http://www.ritholtz.com/blog/2009/07...st/#more-30658

http://www.rgemonitor.com/blog/roubi...y_yellow_weeds


http://www.nytimes.com/2009/07/03/op...gman.html?_r=2

http://www.hoisingtonmgt.com/pdf/HIM2009Q2NP.pdf

The last two paragraphs from the link immediately above.

• The combination of an extremely over
  
  leveraged economy, ineffectual monetary policy
  and misdirected fiscal policy initiatives suggests
  that the U.S. economy faces a long difficult struggle.
  While depleted inventories and the buildup of
  pent-up demand may produce intermittent spurts
  of growth, these brief episodes are not likely to
  be sustained. In several years, real GDP may be
  no higher than its current levels. However, since
  the population will continue to grow, per capita
  GDP will decline; thus, the standard of living will
  diminish as unemployment rises. These conditions
  will produce a deflationary environment similar to
  the Japanese condition.
  
  
• Investments in long term Treasury securities
  
  are motivated by inflationary expectations. If fixed
  income investors believe inflation is headed lower,
  they will invest in long-dated securities, while they
  will invest in Treasury bills, or inflation protected
  securities if they believe inflation is headed higher.
  In the normal recessions since 1950, the low
  in inflation was, on average, 29 months after a
  complete economic recovery was underway, and
  bond yields moved in a similar fashion. If this
  recession were normal, then the low in inflation
  would be in late 2011, at which time investors
  would begin to consider shortening the maturity of
  their Treasury portfolios. However, because of our
  highly-indebted circumstances and the movement
  of private sector resources to the public sector, the
  trough in inflation will be moved out, meaning that
  the low in Treasury bond yields is a distant event.
  The path there will be bumpy, as it was in the U.S.
  from 1929 to 1941 and in Japan from 1989 to 2008.
  Presently the 10-year yield in Japan stands at 1.3%.
  Ultimately, our yield level may be similar to that of
  
  the Japanese.
  

[Jim Nickerson]

Re: Sightings of references to the term "deflation"

i'd like this thread to be dedicated to observations of the word "deflation" in the writings of financial journalists, MSM, speeches of politicians, and so on. i would exclude well known deflationista's like mish. on these grounds i'm also leaving off kevin depew at minyanville, who's been writing about deflation for some time.

my goal is to see if my prediction of a "deflation scare" comes true. as the deflation meme spreads, we can expect commodities to bottom. when and if the word "deflation" is on the cover of time or newsweek, we'll know we've nailed the bottom.

fred, if you find this worthwhile, perhaps you'd make this a sticky.

for my first example, randall forsyth of barron's has begun mentioning deflation lately. today's example:

The Desperate Dash for Cash

By RANDALL W. FORSYTH

As deflation takes hold, debt is out and cash is king. That means everything but Treasuries is for sale.

It's fast approaching two years since jk began this thread. If you can believe it, FRED never saw fit to make it a "sticky" thread. I guess if jk were starting this thread again today he would add Rosenberg's name to those of "mish" and "kevin depew," but maybe not. I figure Rosenberg is a grade or two above Mish and I don't know if the same is true for Depew.

Following are all the mentions of David Rosenberg of "inflation" from his note of Friday July 16, 2010. Just six mentions out of a six page note--not excessive.

"The producer price index (PPI) flagged deflation pressure and this was reinforced by the first decline in the core intermediate goods index (which excludes food and energy) since May of last year. And, excluding oil, import prices slipped 0.6% last month too, which will feed into renewed deflation in the core goods CPI at a time when service sector prices are moderating at an unprecedented rate.

Taken from 6/23/10 FOMC meeting “Some participants judged the risks to the outlook for inflation as tilted to the downside, particularly in the near term, in light of the large amount of resource slack already prevailing in the economy, the significant downside risks to the outlook for real activity, and the possibility that inflation expectations could begin to decline in response to low actual inflation. A few participants cited some risk of deflation.”

"The Fed is more than implicitly telling us that deflation risks predominate and in such an environment, it is critical to deploy strategies that minimize volatility, preserve capital and spin off an income stream.

"The big surprise in coming years will be the return to a 10% savings rate. This in turn will be very, very deflationary, but absolute fodder for income-oriented investment strategies.

"PRODUCER PRICES: WEAK TO THE CORE
Yet another benign data point on inflation. Following the 1.3% plunge in June import prices, producer prices fell, confirming that deflation, not inflation, is the biggest threat to the U.S. economy.

I don't know if the attachment of Rosenberg's pdf will open or not. It doesn't seem to when I click it. File attachments and picture insertions used to work for me before this last update of the bulletin board here. I don't know what my problem is, or where to look to solve it. Sorry for my ineptitude. Good software should not require genius to make it work.

[jk]

Re: Sightings of references to the term "deflation"

thanks for resurrecting this thread, jim. here's another, from krugman's blog at the ny times


July 11, 2010, 11:25 am
Trending Toward Deflation

Inflation has been falling, but how close are we to deflation? I found myself wondering that after observing John Makin’s combusting coiffure, his prediction that we might see deflation this year.

Here’s the thing: the usual way inflation is measured is by looking at the change from a year earlier. But if inflation is trending lower, that’s a lagging indicator — if prices have been falling for the past few months, but were rising before that, inflation over the past year will still be positive. On the other hand, monthly data are noisy. So what to do?

Well, a crude approach would be simply to fit a trend line through those noisy monthly numbers. Here’s what happens when you do this for the Cleveland Fed’s median consumer price inflation number. On the vertical axis is the monthly inflation at an annual rate, on the horizontal axis months with Jan. 2008=0:

[sorry, i can't get the chart image. you can go to the page- suffice it to say that it's headed to zero and below]

Cleveland Fed

Yes, I know, the axes aren’t labeled. Read the text!

Now, there’s a common objection to the Cleveland data, which is that the median tends to be measured by the price of owner-occupied housing, which is imputed rather than directly measured. So for a check I’ve done the same exercise with the personal consumption expenditure deflator for market-based prices, excluding food and energy — a measure designed specifically to deal with that objection Well, whaddya know — a Fed official emails to say that despite what the BEA footnote says, this index still includes owner-occupied housing. Weird. But it doesn’t do very much damage to my main point …:

[another graph headed to zero or lower]

Bureau of Economic Analysis

What I take from this is that deflation isn’t some distant possibility — it’s already here by some measures, not far off by others. And of course there isn’t some magic boundary effect when you cross zero; falling inflation is raising real interest rates and making debt problems worse as we speak.

So “it” is happening here. Domo arigato, Bernanke-san.

http://krugman.blogs.nytimes.com/201...flation&st=cse

[jk]

Re: Sightings of references to the term "deflation"

and here's another:

Fed Leaders Show Division Over Deflation

By SEWELL CHAN
Published: July 14, 2010



WASHINGTON — The Federal Reserve disclosed on Wednesday that its chief policy makers were divided on whether the weak economy faced a new, potentially dangerous threat in the form of deflation.

etc

http://www.nytimes.com/2010/07/15/bu...flation&st=cse

[Rajiv]

Re: Sightings of references to the term "deflation"

[sorry, i can't get the chart image. you can go to the page- suffice it to say that it's headed to zero and below]



Cleveland Fed

Yes, I know, the axes aren’t labeled. Read the text!


[another graph headed to zero or lower]



Bureau of Economic Analysis

Graphs attached above

[ThePythonicCow]

Re: Sightings of references to the term "deflation"

From Bert Dohmen's subscription "Wellington Letter" released today:

The expenditure cuts by the governments will cause severe recessions. Tax revenues will plunge, ballooning the deficits even further. That will require more austerity with more bailouts, worsening the situation. The end result will be a debt moratorium. Other countries may abandon the EU and try to manage on their own, cheapening their currencies and hoping that this will produce a recovery.

Deflation is the huge problem confronting the world. It’s amazing that so few analysts realize that. Ireland’s GDP is already down 18.5%. Some of the Eastern European countries have GDP plunges of 30%. Such declines are seen only during depressions. Spain and Portugal are also seeing significant GDP declines.

Blue Bold emphasis mine; Black Bold emphasis Dohmen's.

[KGW]

Re: Sightings of references to the term "deflation"

latimes.com/business/la-fi-petruno-20100717,0,5615208.column
latimes.com

Skating closer to deflation

With the U.S. economy clearly slowing, a broad-based, sustained decline in prices becomes a bigger risk. The consequences could be dire.

Tom Petruno
Market Beat
July 17, 2010

Imagine a world where prices of all sorts of goods and services just keep moving down.

Your weekly grocery bill shrinks. Your hairstylist gladly accepts 15% less, just to get the business. At long last, movie theaters even stop gouging you on popcorn.

Good times? Sure — until your employer cuts your salary or fires you to cope with the need to reduce prices. Suddenly, the economy is in the grip of a vicious spiral, as falling consumption forces prices lower, driving unemployment up, which in turn drives consumption and prices down further.

That's the deflation scenario that has, yet again, become one of the hottest topics on Wall Street.

Fear of a broad-based, sustained decline in prices — the textbook definition of deflation — was rampant at the height of the credit crisis in late 2008.

That concern faded last year as the economy and financial markets recovered. By early this year many big investors were warning of the opposite risk: They saw the continued ballooning of government budget deficits, and central banks' easy-money policies, as setting the scene for an eventual surge in inflation.

Now, we've come full circle: With the U.S. economy clearly slowing, deflation worries have revived.

"The U.S. economy is at the doorstep of deflation," Nomura Securities economist Zach Pandl warned clients in a lengthy report this month.

A number of Federal Reserve officials have echoed that concern in recent weeks, although in the usual Fed manner — i.e., without using an alarmist tone.

For the moment, however, the story still is one of disinflation rather than deflation. Prices overall are rising, but the year-over-year rate of increase has fallen sharply since August 2008.

The government's consumer price index for June, reported Friday, showed that core inflation — prices for everything except food and energy — was up 0.9% from a year earlier, the slowest pace in 44 years.

Still, the core CPI rose 0.2% in June from May, the biggest monthly increase since October. Prices of used cars, clothing and medical care rose at a faster rate last month than the previous month.

No wonder the average consumer will wonder what this deflation chatter is about. People aren't seeing it in most of what they buy.

But with the year-over-year core CPI skating closer to zero, the risk is that a slowing economy could tip the scales to deflation.

Optimism about the recovery suffered another blow Friday, when the Reuters/University of Michigan national consumer confidence index for July fell more than expected, to the lowest level since August.

It matters more what people actually do with their money than what they say about their confidence or lack of it. But plummeting confidence preceded the financial crisis and economic crash of late 2008. And the government's report this week of disappointing June retail sales added to concerns that consumers' willingness or ability to spend is waning.

Revitalizing consumption has been the great challenge all along in the wake of the devastating recession, of course. A large chunk of the global economy's capacity to produce goods and services has been idled since 2007. That means many businesses' pricing power already is severely limited. If demand falls again, serious price-cutting may be the only option companies would have to try to maintain sales.

"A renewed downturn in the economy at the current low level of resource utilization opens up the possibility that disinflation will turn into outright deflation," said Steven Ricchiuto, an economist at Mizuho Securities USA in New York.

So what? If you have a job, plenty of cash and relatively little debt, deflation would be paradise. Many of your favorite things would cost less. What could be better?

If you're heavily in debt, however, deflation would make that load even more onerous.

What's more, the deflation scenario terrifies companies, governments and central bankers because it raises the possibility of a downward economic spiral that can't easily be reversed.

If consumers adopt a deflationary mind-set, and figure that prices will only get cheaper if they wait to buy, they'll probably be right. But the end result could be a recession even worse than the one we just climbed out of, if demand sinks and companies react in part by slashing their payrolls again.

That is why deflation and depression often are mentioned in the same breath in economic discussions. From July 1929 to March 1933, as the Great Depression deepened, U.S. consumer prices plummeted 27%.

If we look to financial markets today for guidance on deflation risks, the messages aren't encouraging. U.S. stock prices have tumbled since April, when worries about the economy began to intensify. Rally attempts have just given way to more selling, as on Friday, when the Dow industrials slumped 261 points, or 2.5%, to 10,097.

Gold, considered the classic inflation hedge, has fallen 5.5% since reaching an all-time high in mid-June.

And the one asset likely to be coveted in a deflationary period — Treasury bonds, with their guaranteed interest — has seen ravenous demand for the last three months. The 10-year T-note yield has fallen below 3% in recent weeks for the first time since April 2009.

Still, many economists remain convinced that the U.S. won't slide into deflation, because they expect the recovery to continue, though at a slower pace.

Tom Higgins, economist at money manager Payden & Rygel in L.A., expects consumer and business demand to be strong enough in the second half of this year to stabilize annualized core CPI inflation in the 0.7% to 1% range.

If he's wrong about that bottoming in the inflation rate, Higgins said, "Then we get more worried."

The other major argument against deflation taking hold is that the Federal Reserve will do whatever it takes to make sure it doesn't happen.

That would probably mean printing money with abandon and figuring out ways to get that cash into the hands of businesses and consumers if banks can't or won't.

Wouldn't a massive new money-printing binge risk significantly higher inflation down the road? Yes — and that's exactly what a central banker would choose if the alternative was deflation.

tom.petruno@latimes.com

Copyright © 2010, The Los Angeles Times

[jk]

Re: Sightings of references to the term "deflation"

Graphs attached above

thanks

[ThePythonicCow]

Re: Sightings of references to the term "deflation"

From Bob Chapman's subscription "The International Forecaster" released today:

Jim Grant, one of the most respected voices in the financial industry, joins Zero Hedge and ourselves, who see that the only choice the Federal Reserve has now that the temporary and shallow reprieve from the clutches of the deflationary depression is over, is to print more money in the form of another iteration of QE. Whether this will be another $2.5 trillion, like last time, which was the price of an 18 month delay of the inevitable, or a $5 trillion concerted global effort, as Ambrose Evans-Pritchard believes, is irrelevant: the only option the central printers, pardon, bankers, have left is to flood the market with yet more worthless paper

[Fiat Currency]

Re: Sightings of references to the term "deflation"

Well Prechter is at it again ...

The 'D' Word: Let's Talk About Deflation

The "D" word is in the air. I heard it uttered this week on the radio as a reporter gave the headline CPI numbers for June, which were negative for the third month in a row. The trend speaks more of deflation than inflation, he said, and went on to suggest that the Federal Reserve would be able to keep interests rates low. Here's a thought: Maybe the Fed should stop worrying about inflation altogether and get ready to deal with its much more difficult twin, DEFLATION.

Since the possibility of deflation does not register with many investors, it might be a good idea to read what Bob Prechter says about it. Here is an excerpt from a June 2010 interview that focuses on why the U.S. economy will more likely be grappling with deflation than inflation in the months and years to come. Bob spoke with Justin Brill, managing editor of The Daily Crux, which is a financial digest website. Brill introduced the interview to his readers this way:

Dear Daily Crux reader,
This week’s interview is going to rile up the Crux readership. Our interview is focused on what is likely the central investment question of our time: “Is crazed government bailout and stimulus spending going to produce runaway inflation? Or are banks and consumers in such bad shape that demand for goods, loans, and services is set to head lower, which will produce lower prices and deflation?”

The Daily Crux staff expects inflation in the long term. But we have no crystal ball, and neither does anyone else. So this week we’re talking to the world’s highest profile and most outspoken investment guru in the deflation camp, Robert R. Prechter, Jr. Prechter has garnered a wide following with his long career of market calls using a market model called the Elliott Wave Principle, which incorporates the idea that markets are driven by waves of optimism and pessimism. Prechter’s work on crowd psychology — called socionomics — is some of most insightful analysis you’ll read on the subject.

* * * * *
Excerpted from The Elliott Wave Theorist by Robert Prechter, published June 18, 2010

Talk About Deflation

The Daily Crux Sunday Interview
Q&A with Robert Prechter

The Daily Crux: You’ve been a successful market analyst for over 30 years, but over the last several years you’ve become well known for your outspoken calls for deflation and a big bear market in stocks. In fact, you’re probably one of the few market experts calling for outright deflation.

Robert Prechter: That’s for sure. You can count staunch deflationists on one hand. There are so few that I can name them.

Crux: Most of our readers are familiar with the arguments for inflation. We saw a crash in 2008. The Federal Reserve and the government responded to the crisis by “printing money,” easing credit, and bailing out the banks and big financial institutions. All this easy money and credit will lead to inflation. Can you give us a brief, easy-to-understand explanation of how deflation could happen in a paper-money, reserve currency system like ours, and why you think it’s likely?

Prechter: Sure. In the simplest terms, creditors will stop lending, which will keep the credit supply from inflating. And debtors will default, causing the supply of outstanding debt to deflate. This will overwhelm government and central-bank efforts to inflate, and will result in deflation. These trends have already begun.

Believe me, I understand people’s resistance to this scenario. The case for runaway inflation seems so logical. Over the past eight years, the Fed’s lending rates have twice fallen to zero, meaning that credit is free. The Fed has created $1.5 trillion of new money. Central banks around the world have offered unlimited, cost-free credit. The government is spending money like mad. And the Fed and the Treasury have bailed out or guaranteed another trillion or two of bad debt and promise to cover even more. Oh, and the Chairman of the Fed swore eight years ago that he would drop money from helicopters.

There is only one problem with the logic involved: It does not lead us to present conditions. In the great inflations of history – such as what occurred in Germany in the 1920s and Zimbabwe in the 2000s — several things happened: The money supply zoomed; interest rates soared to double and triple digits; commodity and stock prices went up; consumer prices rose relentlessly; and people raced to get rid of money as fast as they got hold of it.

Today, not one of these events is happening. In fact, the opposite is happening: M3 (a measure of the amount of money and credit in the system) is contracting at its fastest pace since the 1930s. Interest rates on Treasury bills are stuck at zero. The CRB index of commodities is at half its value of just two years ago. The stock market is lower than it was 10 years ago. The PPI and CPI (measures of producer and consumer prices) have a zero rate of change. People are struggling to get anyone to part with a dollar: They can’t get loans, they can’t sell their houses, and they can’t land a job. And Walmart is cutting prices. This is the “Bizarro” version of Germany and Zimbabwe: Everything’s backwards.

Crux: Well, not everything. Gold is at all-time highs.

Prechter: And so are Toronto real estate and vintage wine. But let’s put these markets in perspective. There have been three great credit-inflation peaks over the past ten years. In 2000, many stock markets around the world stopped going up. In 2006, real estate stopped going up. In 2008, commodities stopped going up. Stocks, commodities and real estate are three massive markets worldwide.

Here in 2010, a few late bloomers are making new all-time highs. I never thought the long term inflationary topping process would take this long, but it has. At each of these peaks, investors have focused on one area or another. Every time it’s happened, the area of focus has reversed trend, plummeting in price by 50% or more.

This latest credit reflation is the weakest yet, so it hardly inspires confidence that today’s isolated bull markets will end any differently. Each time a bull market matures, investors are sure it can’t reverse. They said that about technology and internet stocks; they said it about real estate; they said it about oil. Now that a couple of markets are at all-time highs, we hear the same argument about them. This is natural, because investors always want to own markets that are way up. But investors in those previous booms are never going to get back to breakeven. Many of them were ruined.