Best of the Week
Most Popular
1. Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - Raymond_Matison
2.Uber’s Nightmare Has Just Started - Stephen_McBride
3.Stock Market Crash Black Swan Event Set Up Sept 12th? - Brad_Gudgeon
4.GDow Stock Market Trend Forecast Update - Nadeem_Walayat
5.Gold Significant Correction Has Started - Clive_Maund
6.British Pound GBP vs Brexit Chaos Timeline - Nadeem_Walayat
7.Cameco Crash, Uranium Sector Won’t Catch a break - Richard_Mills
8.Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - Dan_Amerman
9.Gold When Global Insanity Prevails - Michael Ballanger
10.UK General Election Forecast 2019 - Betting Market Odds - Nadeem_Walayat
Last 7 days
Will Labour Government Spending Bankrupt Britain? UK Debt and Deficits - 7th Dec 19
Lib Dem Fake Tory Election Leaflets - Sheffield Hallam General Election 2019 - 7th Dec 19
You Should Be Buying Gold Stocks Now - 6th Dec 19
The End of Apple Has Begun - 6th Dec 19
How Much Crude Oil Do You Unknowingly Eat? - 6th Dec 19
Labour vs Tory Manifesto Voter Bribes Impact on UK General Election Forecast - 6th Dec 19
Gold Price Forecast – Has the Recovery Finished? - 6th Dec 19
Precious Metals Ratio Charts - 6th Dec 19
Climate Emergency vs Labour Tree Felling Councils Reality - Sheffield General Election 2019 - 6th Dec 19
What Fake UK Unemployment Statistics Predict for General Election Result 2019 - 6th Dec 19
What UK CPI, RPI and REAL INFLATION Predict for General Election Result 2019 - 5th Dec 19
Supply Crunch Coming as Silver Miners Scale Back - 5th Dec 19
Gold Will Not Surpass Its 1980 Peak - 5th Dec 19
UK House Prices Most Accurate Predictor of UK General Elections - 2019 - 5th Dec 19
7 Year Cycles Can Be Powerful And Gold Just Started One - 5th Dec 19
Lib Dems Winning Election Leaflets War Against Labour - Sheffield Hallam 2019 - 5th Dec 19
Do you like to venture out? Test yourself and see what we propose for you - 5th Dec 19
Great Ways To Make Money Over Time - 5th Dec 19
Calculating Your Personal Cost If Stock, Bond and House Prices Return To Average - 4th Dec 19
Will Labour Government Plant More Tree's than Council's Like Sheffield Fell? - 4th Dec 19
What the UK Economy GDP Growth Rate Predicts for General Election 2019 - 4th Dec 19
Gold, Silver and Stock Market Big Picture: Seat Belts Tightened - 4th Dec 19
Online Presence: What You Need to Know About What Others Know About You - 4th Dec 19
New Company Tip: How To Turn Prospects into Customers with CRM Tech - 4th Dec 19
About To Relive The 2007 US Housing Market Real Estate Crash Again? - 3rd Dec 19
How Far Will Gold Reach Before the Upcoming Reversal? - 3rd Dec 19
Is The Current Stock Market Rally A True Valuation Rally or Euphoria? - 3rd Dec 19
Why Shale Oil Not Viable at $45WTI Anymore, OPEC Can Dictate Price Again - 3rd Dec 19
Lib Dem Election Dodgy Leaflets - Sheffield Hallam Battle General Election 2019 - 3rd Dec 19
Land Rover Discovery Sport Brake Pads Uneven Wear Dash Warning Message at 2mm Mark - 3rd Dec 19
The Rise and Evolution of Bitcoin - 3rd Dec 19
Virtual games and sport, which has one related to the other - 3rd Dec 19
The Narrative About Gold is Changing Again - 2nd Dec 19
Stock Market Liquidity & Volume Diminish – What Next? - 2nd Dec 19
A Complete Guide To Finding The Best CFD Broker - 2nd Dec 19
See You On The Dark Side Of The Moon - 2nd Dec 19
Will Lib Dems Win Sheffield Hallam From Labour? General Election 2019 - 2nd Dec 19
Stock Market Where Are We?  - 1st Dec 19
Will Labour's Insane Manifesto Spending Plans Bankrupt Britain? - 1st Dec 19
Labour vs Tory Manifesto Debt Fuelled Voter Bribes Impact on UK General Election - 30th Nov 19
Growing Inequality Unrest Threatens Mining Industry - 30th Nov 19
Conspiracy Theories Are Killing This Nation - 30th Nov 19
How to Clip a Budgies / Parakeets Wings, Cut / Trim Bird's Flight Feathers - 30th Nov 19
Hidden Failure of SIFI Banks - 29th Nov 19
Use the “Ferrari Pattern” to Predictably Make 431% with IPOs - 29th Nov 19
Tax-Loss Selling Drives Down Gold and Silver Junior Stock Prices - 29th Nov 19
We Are on the Brink of the Second Great Depression - 29th Nov 19
How to Spot REAL Amazon Black Friday Bargains and Avoid FAKE Sales - 29th Nov 19

Market Oracle FREE Newsletter

UK House prices predicting general election result

Deflation becomes the Dominant Economic Trend

Economics / Deflation Jul 12, 2010 - 09:34 AM GMT

By: Clif_Droke

Economics Best Financial Markets Analysis ArticleOne of the abiding fears since the government stimulus effort began in earnest last year has been the fear that runaway inflation will once again rear its ugly head. Legions of market commentators have predicted the return of inflation in spite of the deflationary environment we find ourselves in.

Can we reasonably expect a return of inflation in the foreseeable future? The Kress Cycles say “No!” and tell us to expect just the opposite, namely a deflationary trend. This has certainly been the dominant economic trend since the credit crisis of 2008 and, in some areas, even before then.


Government has for years been dead set on fighting deflation with re-inflationary countermeasures. The combined efforts of government spending and central bank pump priming have by and large met with success in combating the immediate effects of deflation. After the unprecedented rollercoaster ride of the past two years, however, it’s beginning to look like policy makers have capitulated to the deflationary trend. In place of the reactionary Keynesianism of years past, a startling about-face has occurred in which governments and central banks in the developed countries have embraced austerity and capitulation to the deflationary trend.

Congress recently failed to extend unemployment benefits and abandoned plans for another round of stimulus to combat what is the worst economic recession in over a generation. Ironically, a leading socialist news service found itself in the unlikely position of criticizing the Democrats for their collective failure to increase government spending. Under the headline ”Obama, Democrats abandon stimulus for austerity,” the International Committee for the Fourth International (ICFI) wrote, “With long-term unemployment at its highest level since records began in the 1940s, the Obama administration and Democratic congressional leaders are abandoning even the wholly inadequate economic stimulus measures of last year and focusing instead on budget-cutting and austerity.” The article went on to lament the administration’s 5 percent budget cut, amounting to $250 billion over 10 years. This prompted one commentator to ask, “Will President Obama be America’s first deflationary Democratic?”

ICFI also emphasized Federal Reserve Chairman Ben Bernanke’s demand that Congress and the White House formulate a plan to sharply reduce the US deficit, projected to reach $1.6 trillion this year. The widespread obsession over deficit reduction, both here and abroad, is deflationary.

ICFI continues, “Under conditions of harsh budget-cutting across Europe, renewed crisis and volatility in financial and currency markets and the threat of a new global credit crunch, the prospects for a serious revival in US production and exports are remote. Yet the White House and the Democratic-led Congress are essentially ignoring the jobs crisis and condemning the American people to years of near-doubled-digit unemployment. They are doing so at the behest of the major banks and financial firms, which demand fiscal austerity to protect their speculative investments, profits and gargantuan salaries.”

It’s quite remarkable and even amusing to read a left-wing commentary that is critical of what is widely considered a socialistic federal government. Obama was widely hailed by the socialists as a political savior when he was first elected. And yet here we are 18 months later and it has come to this.

An article appearing in the Wall Street Journal recently drew attention to a surprising deflationary mindset among policy makers. “Deflationary Mindset Makes Itself at Home,” writes Kelly Evans in a recent issue of WSJ. As Kelly observed, “Policy makers generally have an easier time slowing an overheated economy than trying to stimulate a contracting one.” In the present case it appears that policy makers have given up even trying. Kelly points out that in spite of multi-decade lows in mortgage rates, borrowing activity is falling, not rising. The same declining trend in borrowing can be seen in the long-term graph showing consumer credit outstanding.



The above graph is the very epitome of deflation and in a nation like the U.S. whose economy is heavily depending on consumer spending, there is no bigger indication that deflation is the dominant long-wave economic trend.

The housing market is another major indication of how K Wave and Kress cycle deflation is exerting its influence. “The bigger worry,” as Kelly observed, “may be that a deflationary mindset has taken hold in the housing market. This has buyers in no hurry to lock in even today’s low rates.” A recent survey by the Conference Board found that only 1.9 percent of consumers plan to buy a home in the next six months, one of the lowest readings since 1982. Tighter lending standard, as Kelly points out, is another roadblock to inflation as many households remain cash-strapped.

Yet another indication of deflation is the fact that the level of MZM money stock has diminished significantly over the last 12 months, and for only the sixth time in the last 50 years. One reason for this diminution of MZM is that only some of the money has come out of the bunker since the crisis of 2008, while there continues to be a general decline in risk appetites and the desire to borrow. As analyst Mark Dodson observed, “One conclusion is that in spite of all the action that the Fed has undertaken, Fed policy remains more deflationary than inflationary.”



It’s not any coincidence that the credit crisis of 2008, being six years from 2014, was technically when the final “hard down” phase of the Kress 60-year cycle started. The hard down phase of the 60-year cycle, scheduled to bottom in 2014, is defined as the runaway deflationary leg of the cycle. It also roughly coincides with the Kondratieff long wave, which also implies a deflationary environment as we head toward 2014.

K Wave analyst David Knox Barker has pointed out that government tends to be behind the curve where the economic long wave is concerned. Not uncommonly does history record the belated actions of the feds in trying to extinguish financial fires, of which the credit crisis of 2008 affords an excellent example. Had the combined efforts of the Fed and the Treasury been any slower in coming to the rescue at that time, the financial superstructure might have been entirely consumed in the credit conflagration.

Unfortunately, as history attests, government action in fighting against deflation tends to be inadequate and deflation at some point usually gains the upper hand. As Barker has stated in his book on the K Wave, government has a tendency to underestimate the severity of the deflationary problem and therefore does too little to counteract the hyper-deflationary forces of the economic long wave. That appears to be the case now as the government sits on its proverbial hands under the false assumption that its previous efforts at staving off deflation were ultimately successful.

As we touched on earlier, this year is the “down” year of the alternate, or 2-year, cycle. In the down year of this particular cycle the deflationary bias of the bigger cycles, namely the 40-year and 60-year cycles, tend to be especially felt if there isn’t a counteracting influence such as a massive monetary stimulus. Since this is an unlikely event anytime soon, it means investors will need to be on the lookout for the reappearance of extreme volatility, particularly in the months of August and September and until the 2-year cycle bottoms later this fall.

Cycles

Over the years I’ve been asked by many readers what I consider to be the best books on stock market cycles that I can recommend. While there are many excellent works out there on the subject of technical and fundamental analysis, chart reading, etc., precious few have addressed the subject of market cycles. Of the relatively few books on cycles that are available, most don’t even merit mentioning. I’ve read only one book in the genre that I can recommend – The K Wave by David Knox Barker – but even that one doesn’t deal directly with stock market cycles but instead with the economic long wave. I’m pleased to announce, however, that after nearly 10 years of research and one year of writing, I’ve completed a book on the subject that I believe will meet the critical demands of most cycle students. It’s entitled, The Stock Market Cycles, and is available for sale at:

http://clifdroke.com/books/Stock_Market.html

By Clif Droke
www.clifdroke.com

Clif Droke is the editor of the daily Gold & Silver Stock Report. Published daily since 2002, the report provides forecasts and analysis of the leading gold, silver, uranium and energy stocks from a short-term technical standpoint. He is also the author of numerous books, including 'How to Read Chart Patterns for Greater Profits.' For more information visit www.clifdroke.com

Clif Droke Archive

© 2005-2019 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

6 Critical Money Making Rules