Best of the Week
Most Popular
1.Spain Ignores Scotland Lesson as Catalan Independence Referendum Could Spark Civil War - Nadeem_Walayat
2.Used Car Buying From UK Dealer Top Tips, CarMotion.co.uk Real Customer Experience - N_Walayat
3.Spanish New Civil War Begins as Madrid Regime Storm Troopers Quell Catalan Independence Rebellion - Nadeem_Walayat
4.Virgin Media Broadband Down, Catastrophic UK Wide Failure! - Nadeem_Walayat
5.Are the US Markets setting up for an Early October Surprise? - Chris_Vermeulen
6.The Pension Storm Is Coming To Europe—It May Be The End Of Europe As We Know It -John_Mauldin
7.Stock Market Crash 2018; Will it Prove to be Another Buying Opportunity - Sol_Palha
8.The Profoundly Personal Impact Of The National Debt On Our Retirements - Dan_Amerman
9.Stock Market as Good as it Gets; Like 2000 With a Twist -Gary_Tanashian
10.1987 Stock Market Crash 30th Anniversary Greatest Investing Lesson Learned - Nadeem_Walayat
Last 7 days
Debt-Driven Consumer Economy Breaking Down - 23rd Oct 17
Next Wall Street Stock Market Crash Looms? Lessons On Anniversary Of 1987 Crash - 23rd Oct 17
This Super Metal Is Set To Soar By 300% - 23rd Oct 17
More New Record Highs As S&P 500 Gets Closer To 2,600 Mark - 23rd Oct 17
Another Minor Stock Market Top? - 23rd Oct 17
Bitcoin Hits $6,000, $100 Billion Market Cap As Helicopter Ben and Jamie Demon Warn The End Is Near! - 22nd Oct 17
Time for Caution in Gold Miners - 22nd Oct 17
“Great Rotation” Ahead; Will it Be Inflationary or Deflationary? - 21st Oct 17
The Trigger for Volatility, Rates and the Next Crisis - 21st Oct 17
Perks to Consider an Agent for Auto Insurance - 21st Oct 17
Emerging Megatrends Hurting Consumers - 21st Oct 17
A Catalyst of the Stock Market Bubble Bust - 21st Oct 17
Silver Stocks Comatose - 21st Oct 17
Stock Investors Ignore What May Be The Biggest Policy Error In History - 20th Oct 17
Gold Up 74% Since Last Stock Market Peak 10 Years Ago - 20th Oct 17
Labour Sheffield City Council Employs Army of Spy's to Track Down Tree Campaigners / Felling's Watchers - 20th Oct 17
Stock Market Calm Before The Storm - 20th Oct 17
GOLD Price Creates Bullish Higher Low - 20th Oct 17
Here’s the US’s Biggest Vulnerability in NAFTA Negotiations - 20th Oct 17
The Greatest Investing Lesson Learned from the 1987 Stock Market Crash - 20th Oct 17
Stock Market Time to Go All-in. Short, That Is - 19th Oct 17
How Gold Bullion Protects From Conflict And War - 19th Oct 17
Stock Market Super Cycle Wave C May Have Started - 19th Oct 17
Negative Expectations, Will the Stock Market Correct? - 19th Oct 17
Knowing the Factors Affect your Car Insurance Premium - 19th Oct 17
Getting Your Feet Wet In Crypto Currencies - 19th Oct 17
10 Years Ago Today a Stocks Bear Market Started - 19th Oct 17
1987 Stock Market Crash 30th Anniversary Greatest Investing Lesson Learned - 19th Oct 17
Virgin Media Broadband Down, Catastrophic UK Wide Failure! - 19th Oct 17
The Passive Investing Bubble May Trigger A Massive Exodus from Stocks - 18th Oct 17
Gold Is In A Dangerous Spot - 18th Oct 17
History Says Global Debt Levels Will Lead to Another Crisis - 18th Oct 17
Deflation Basics Series: The Quantity Theory of Money - 18th Oct 17
Attractive European Countries for Foreign Investors - 18th Oct 17
Financial Transcription Services – What investors should know about them - 18th Oct 17
Brexit UK Vulnerable As Gold Bar Exports Distort UK Trade Figures - 18th Oct 17
Surge in UK Race Hate Crimes, Micro-Racism, Sheffield, Millhouses Park, Black on Asian - 18th Oct 17
Comfortably Numb: Surviving the Assault on Silver - 17th Oct 17
Are Amey Street Tree Felling's Devaluing Sheffield House Prices? - 17th Oct 17
12 Real-Life Techniques That Will Make You a Better Trader Now - 17th Oct 17
Warren Buffett Predicting Dow One Million - Being Bold Or Overly Cautious? - 17th Oct 17
Globalization is Poverty - 17th Oct 17
Boomers Are Not Saving Enough for Retirement, Neither Is the Government - 16th Oct 17
Stock Market Trading Dow Theory - 16th Oct 17
Stocks Slightly Higher as They Set New Record Highs - 16th Oct 17
Why is Big Data is so Important for Casino Player Acquisition and Retention - 16th Oct 17
How Investors Can Play The Bitcoin Boom - 16th Oct 17
Who Will Be the Next Fed Chief - And Why It Matters  - 16th Oct 17
Stock Market Only Minor Top Ahead - 16th Oct 17
Precious Metals Sector is on Major Buy Signal - 16th Oct 17
Really Bad Ideas - The Fed Should Have And Defend An Inflation Target - 16th Oct 17
The Bullish Chartology for Gold - 15th Oct 17
Wikileaks Mocking US Government Over Bitcoin Shows Why There Is No Stopping Bitcoin - 15th Oct 17
How to Wipe Out Puerto Rico's Debt Without Hurting Bondholders - 15th Oct 17
Gold And Silver – Think Prices Are Manipulated? Look In The Mirror! - 15th Oct 17

Market Oracle FREE Newsletter

3 Videos + 8 Charts = Opportunities You Need to See - Free

Economic Downward Deflationary Spiral: The Next Big Wave of Deflation is Upon Us

Economics / Deflation Jul 09, 2010 - 11:10 AM GMT

By: Global_Research

Economics

Best Financial Markets Analysis ArticleMichael Schmidt writes: It looks like the next big wave of deflation is upon us. Looking at some key fundamentals, we see the labor market is again shredding jobs (652,000 in June), the money supply is contracting at levels not seen since the Great Depression and the US Federal Governments finances are in complete disaster.


We stand on unbelievably shaky ground right now and this time around there isn’t any room for another massive fiscal stimulus from a soon to be impotent Federal Reserve. It appears that a good amount of mainstream economists and financial journalists are finally recognizing that the worst may still be to come. This comes from Ambrose Evans-Pritchard of the Telegraph earlier this week, “Let us be honest. The US is still trapped in depression a full 18 months into zero interest rates, quantitative easing (QE), and fiscal stimulus that has pushed the budget deficit above 10pc of GDP”.

As we watch the various stock indexes begin their slow and inevitable decline, it appears that no amount of monetary stimulus or meddling from the Fed can stop the next leg down. Liquidity is rapidly fleeing the financial system. Again, as Pritchard notes, money market funds declined 37% in the month of May, something that has never happened before.  Although the Federal Reserve no longer publishes the total money supply figure (M3), many well respected economists including John Williams of Shadowstats, reconfigure the data based on previously used computation methods. For the three month period ending in April, the money supply in the US (M3) fell at what amounted to a 9.6% annually, something not seen since the Great Depression. As the money dries up from the stimulus driven “economic recovery” of 2009, it appears 2010 will be marred by another round of credit contraction.

What’s worse is that the US Government may be unable to respond in a similar manner as in 2008, mainly because our government’s finances are in complete disarray. The sad truth is that the US Treasury needs continued support from foreign central banks, much more than they need us. With the Federal Government running a $1.8 trillion dollar deficit this year, and with large deficits for many years to come, we need international investors and foreign central banks to continue their appetite for Treasury bonds. It appears that they may have finally had their fill. Besides the obvious economic disincentive of holding a depreciating asset, these investors now have less money to pump back into the coffers of the US Treasury. China recently announced they are removing the artificial currency peg to the US dollar, and will allow the yuan to appreciate gradually against an already struggling greenback. This again from Ambrose Evans-Pritchard,

 “ When China allowed the yuan to rise in July 2005 the move triggered a slide in US Treasury bonds, with knock-on effects on US mortgage and corporate debt … Yuan revaluation is likely to dampen China's export growth and slow the pace of reserve accumulation, reducing the need to recycle money into foreign bonds.”

With economic activity drastically lower over the past 3 years, it appears foreign central banks are unable to cushion our ever increasing deficit.

Even the international political situation is much different as well. With the recent calls from the UN for a new international reserve currency to replace the dollar, the situation has never been more tenuous for the US financial leadership.  From the UN’s World Economic and Social Survey 2010:Retooling Global Development, it states  “A new global reserve system could be created, one that no longer relies on the United States dollar as the single major reserve currency… The dollar has proved not to be a stable store of value, which is a requisite for a stable reserve currency.” Given that the IMF already has an international currency, SDR (Special Drawing Rights), the writing may be on the wall for the US dollar. It appears sooner rather than later, the dollar will be ditched in favor of another fiat currency, this time one purely international in scale.

When we factor in all of these recent developments, we see that there is only one place to go for the US economy. All the cheerful talk of recovery over the past year is slowly slipping into a more somber and realistic tone. With the apparent correction taking place in the stock market, there doesn’t appear to be many places to hide if you are an investor. As it always has been, it appears gold and silver are the only legitimate places to park your money as we prepare for the next leg down.

Michael Schmidt was a financial representative at Fidelity Investments where he traded securities and helped customers with their investment and retirement accounts. You can read more of his articles at http://www.examiner.com/x-25578-Cincinnati-Economy-Examiner or reach him at Michael.schmidt1985@yahoo.com.

Global Research Articles by Michael Schmidt

© Copyright Michael Schmidt, Global Research, 2010

Disclaimer: The views expressed in this article are the sole responsibility of the author and do not necessarily reflect those of the Centre for Research on Globalization. The contents of this article are of sole responsibility of the author(s). The Centre for Research on Globalization will not be responsible or liable for any inaccurate or incorrect statements contained in this article.


© 2005-2017 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife