Best of the Week
Most Popular
1. Ray Dalio: This Debt Cycle Will End Soon - John_Mauldin
2.Stock Market Dow Plunge Following Fake US - China Trade War Truce - Nadeem_Walayat
3.UK House Prices 2019 No Deal BrExit 30% Crash Warning! - Nadeem_Walayat
4.What the Oil Short-sellers and OPEC Don’t Know about Peak Shale - Andrew_Butter
5.Stock Market Crashed While the Yield Curve Inverted - Troy_Bombardia
6.More Late-cycle Signs for the Stock Market and What’s Next - Troy_Bombardia
7.US Economy Will Deteriorate Over Next Half Year. What this Means for Stocks - Troy_Bombardia
8.TICK TOCK, Counting Down to the Next Recession - James_Quinn
9.How Theresa May Put Britain on the Path Towards BrExit Civil War - Nadeem_Walayat
10.This Is the End of Trump’s Economic Sugar High - Patrick_Watson
Last 7 days
Macro Could Weaken After US Government Shutdown. What This Means for Stocks - 17th Jan 19
US Stock Market Indexes Reaches Fibonacci Target Zone – Where to Next? - 17th Jan 19
How 2018 Was For The UK Casino Industry - 17th Jan 19
Gold Price – US$700 Or US$7000? - 16th Jan 19
Commodities Are the Right Story for 2019 - 16th Jan 19
Bitcoin Price Wavers - 15th Jan 19
History Shows That “Disruptor Stocks” Will Make You the Most Money in a Bear Market - 15th Jan 19
What Will the Stock Market Do Around Earnings Season - 15th Jan 19
2018-2019 Pop Goes The Debt Bubble - 15th Jan 19
Are Global Stock Markets About To Rally 10 Percent? - 15th Jan 19
Here's something to make you money in 2019 - 15th Jan 19
Theresa May to Lose by Over 200 Votes as Remain MP's Plot Subverting Brexit - 15th Jan 19
Europe is Burning - 14th Jan 19
S&P 500 Bounces Off 2,600, Downward Reversal? - 14th Jan 19
Gold A Rally or a Bull Market? - 14th Jan 19
Gold Stocks, Dollar and Oil Cycle Moves to Profit from in 2019 - 14th Jan 19
How To Profit From The Death Of Las Vegas - 14th Jan 19
Real Reason for Land Rover Crisis is Poor Quality of Build - 14th Jan 19
Stock Market Looking Toppy! - 13th Jan 19
Liquidity, Money Supply, and Insolvency - 13th Jan 19
Top Ten Trends Lead to Gold Price - 13th Jan 19
Silver: A Long Term Perspective - 13th Jan 19
Trump's Impeachment? Watch the Stock Market - 12th Jan 19
Big Silver Move Foreshadowed as Industrial Panic Looms - 12th Jan 19
Gold GDXJ Upside Bests GDX - 12th Jan 19
Devastating Investment Losses Are Coming: What Is Your Advisor Doing About It? - 12th Jan 19
Things to do Before Choosing the Right Credit Card - 12th Jan 19
Japanese Yen Outlook In 2019 - 11th Jan 19
Yield curve suggests that US Recession is near: Trading Setups - 11th Jan 19
How Unrealistic Return Assumptions Are Ruining Your Stocks Portfolio - 10th Jan 19
What’s Next for the US Dollar, Gold, Stocks & Bonds? - 10th Jan 19
America's New Africa Strategy - 10th Jan 19
Gold Mine Production by Country - 10th Jan 19
Gold, Stocks and the Flattening Yield Curve - 10th Jan 19
Silver Price Trend Forecast Target for 2019 - 10th Jan 19
Silver Price Trend Forecast 2019 - 9th Jan 19
Did Strong December Payrolls Push Gold Prices Up? - 8th Jan 19
How to Spot A Tradable Stock Market Top? - 8th Jan 19
Why 90% of Traders Lose - 8th Jan 19
Breadth is Very Strong While Stocks are Surging. What’s Next for Stocks - 8th Jan 19
Half of Investment-Grade Bonds Are Just One Step from Junk Status - 7th Jan 19
Stocks Rallied Again, Still Just an Upward Correction? - 7th Jan 19
Gold Golden Long-Term Opportunity - 7th Jan 19

Market Oracle FREE Newsletter

Bitcoin Analysis and Trend Forecast 2019

What Deflation Quacks Like

Economics / Deflation Dec 07, 2015 - 03:13 PM GMT

By: Raul_I_Meijer

Economics

As yet another day of headlines shows, see the links and details in today’s Debt Rattle at the Automatic Earth, deflation is visible everywhere, from a 98% drop in EM debt issuance to junk bonds reporting the first loss since 2008 to corporate bonds downgrades to plummeting cattle prices in Kansas to China’s falling demand for iron ore and a whole list of other commodities.


The list is endless. It is absolutely everywhere. And it’s there every single day. But how would we know? After all, we’re being told incessantly that deflation equals falling consumer prices. And since these don’t fall -yet-, other than at the pump (something people seem to think is some freak accident), every Tom and Dick and Harry concludes there is no deflation.

But if you wait for consumer prices to fall to recognize deflationary forces, you’ll be way behind the curve. Always. Consumer prices won’t drop until we’re -very- well into deflation, and they will do so only at the moment when nary a soul can afford them anymore even at their new low levels.

The money supply, however it’s measured, may be soaring (Ambrose Evans-Pritchard makes the point every other day), but that makes no difference when spending falls as much as it does. And it does. The whole shebang is maxed out. And the whole caboodle is maxed out too. All of it except for central banks and other money printers.

Everyone has so much debt that spending can only come from borrowing more. Until it can’t. We read comments that tell us the global markets are reaching the end of the ‘credit cycle’, but can the insanity that has ‘saved’ the economy over the past 7 years truly be seen as a ‘cycle’, or is it perhaps instead just pure insanity? There’s never been so much debt on the planet, so unless we’re starting a whole new kind of cycle, not much about it looks cyclical.

Also, though we hear this all the time, the collapse in spending does not happen because people are ‘saving’, but we wouldn’t know that from the ‘official’ numbers, because when people pay down their debts, that is counted as ‘saving’.

So you have debt collectors at the front door (and the back) and you’re about to be evicted or lose your car, and then when you pay them with what you would really need to feed your kids with, and sell your furniture, and sell your TV, economic models tell you you’re actually saving.

That’s the sort of accounting retardation that keeps us from ever understanding what bind we’re really in. When deflation starts and commodities prices begin plunging -and they would have to be first, there’s no better barometer-, we’re told to think that only when what we pay for goods and services goes down, do we have deflation. And when we pay off our debts with our very very last pennies, they tell us we’re saving.

Of course we could have known long ago what’s happening not only if these faulty definitions weren’t so infectiously widespread, but also if our central banks wouldn’t have engaged in stimulus related actions, ostensibly meant to save the economy but which are in reality just yet another means of wealth transfer away from you and me.

What all the stimulus has done is suspend us in a Wile E. moment fashion, in which things look sort of OK while we’re busy frantically paddling our feet, but in which we’re just as sure as Mr. E. to eventually plummet to the ground, albeit with much less predictable results than in his case (he’s always fine after 10 seconds max).

Stimulus, whether disguised as QE or anything else, keeps us from recognizing the reality of the situation, and the deflation, that we’re in. But then someone gets nervous about their investments, or their loans, their stocks, and before you know it they all do, and everything turns out to be based on leveraged debt, of which they can’t get any anymore, and they all want their money back all at the same time, and you hear a big loud Poof!

One more time, this is deflation. This is what it looks like, what it smells like and what it quacks like.

By Raul Ilargi Meijer
Website: http://theautomaticearth.com (provides unique analysis of economics, finance, politics and social dynamics in the context of Complexity Theory)© 2015 Copyright Raul I Meijer - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Raul Ilargi Meijer Archive

© 2005-2018 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