Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
The Connection Between Stocks and the Economy is not What Most Investors Think - 19th Sep 20
A Virus So Deadly, The Government Has to Test You to See If You Have It - 19th Sep 20
Will Lagarde and Mnuchin Push Gold Higher? - 19th Sep 20
RTX 3080 Mania, Ebay Scalpers Crazy Prices £62,000 Trollers Insane Bids for a £649 GPU! - 19th Sep 20
A Greater Economic Depression For The 21st Century - 19th Sep 20
The United Floor in Stocks - 19th Sep 20
Mobile Gaming Market Trends And The Expected Future Developments - 19th Sep 20
The S&P 500 appears ready to correct, and that is a good thing - 18th Sep 20
It’s Go Time for Gold Price! Next Stop $2,250 - 18th Sep 20
Forget AMD RDNA2 and Buy Nvidia RTX 3080 FE GPU's NOW Before Price - 18th Sep 20
Best Back to School / University Black Face Masks Quick and Easy from Amazon - 18th Sep 20
3 Types of Loans to Buy an Existing Business - 18th Sep 20
How to tell Budgie Gender, Male or Female Sex for Young and Mature Parakeets - 18th Sep 20
Fasten Your Seatbelts Stock Market Make Or Break – Big Trends Ahead - 17th Sep 20
Peak Financialism And Post-Capitalist Economics - 17th Sep 20
Challenges of Working from Home - 17th Sep 20
Sheffield Heading for Coronavirus Lockdown as Covid Deaths Pass 432 - 17th Sep 20
What Does this Valuable Gold Miners Indicator Say Now? - 16th Sep 20
President Trump and Crimes Against Humanity - 16th Sep 20
Slow Economic Recovery from CoronaVirus Unlikely to Impede Strong Demand for Metals - 16th Sep 20
Why the Knives Are Out for Trump’s Fed Critic Judy Shelton - 16th Sep 20
Operation Moonshot: Get Ready for Millions of New COVAIDS Positives in the UK! - 16th Sep 20
Stock Market Approaching Correction Objective - 15th Sep 20
Look at This Big Reminder of Dot.com Stock Market Mania - 15th Sep 20
Three Key Principles for Successful Disruption Investors - 15th Sep 20
Billionaire Hedge Fund Manager Warns of 10% Inflation - 15th Sep 20
Gold Price Reaches $2,000 Amid Dollar Depreciation - 15th Sep 20
GLD, IAU Big Gold ETF Buying MIA - 14th Sep 20
Why Bill Gates Is Betting Millions on Synthetic Biology - 14th Sep 20
Stock Market SPY Expectations For The Rest Of September - 14th Sep 20
Gold Price Gann Angle Update - 14th Sep 20
Stock Market Recovery from the Sharp Correction Goes On - 14th Sep 20
Is this the End of Capitalism? - 13th Sep 20
The Silver Big Prize - 13th Sep 20
U.S. Shares Plunged. Is Gold Next? - 13th Sep 20
Why Are 7,500 Oil Barrels Floating on this London Lake? - 13th Sep 20
Sheffield 432 Covid-19 Deaths, Last City Centre Shop Before Next Lockdown - 13th Sep 20
Biden or Trump Will Keep The Money Spigots Open - 13th Sep 20
Gold And Silver Up, Down, Sideways, Up - 13th Sep 20
Does the Stock Market Really "See" the Future? - 12th Sept 20
Basel III and Gold, Silver and Platinum - 12th Sept 20
Tech Stocks FANG Index Nearing Critical Support – Could Breakout At Any Moment - 12th Sept 20
The Tech Stocks Quantum AI EXPLOSION is Coming! - 12th Sept 20
AMD Zen 3 Ryzen 4000 Questions Answered on Cores, Prices, Benchmarks and Threadripper Launch - 12th Sept 20
The Inflation Mega-trend is Going Hyper! - 11th Sep 20
Gold / Silver Ratio: Slowly I Toined… - 11th Sep 20
Stock Market Correction or Reversal? The Jury Isn't Out! - 11th Sep 20
Crude Oil – The Bearish Outlook Remains - 11th Sep 20
Crude Oil Breaks Lower – Sparking Fears Of Another Sub $30 Price Collapse - 11th Sep 20
Inflation by Fiat - 10th Sep 20
Unemployment Rate Drops. Will It Drag Gold Down? - 10th Sep 20
How Does The Global Economy Recover After This Global Pandemic? - 10th Sep 20
The Best Mobile Casino - 10th Sep 20
QE4EVER! - 9th Sep 20
AMD Ryzen Zen 3 4800x 10 Core 5ghz CPU, Cinebench Benchmark Scores (Est.) - 9th Sep 20
Stock Traders’ Dreams Come True – Big Technical Price Swings Pending on SP500 - 9th Sep 20
Should You Be Concerned About The Stock Market Big Downside Rotation? - 9th Sep 20
Options Traders Keep "Opting" for Even Higher Stock Market Prices - 8th Sep 20
Gold Stocks in Correction Mode - 8th Sep 20
The law of long-term time preference and Gold ownership - 8th Sep 20
Gold Bull Markets: History and Prospects Ahead - 8th Sep 20
Sheffield City Centre Coronavirus Shopping Opera Ahead of Second Covid-19 Peak - 8th Sep 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

Exposing Three Myths of Deflation and Recession

Economics / Deflation Feb 04, 2009 - 10:57 AM GMT

By: EWI

Economics Best Financial Markets Analysis ArticleThis article is part of a syndicated series about deflation from market analyst Robert Prechter, the world's foremost expert on and proponent of the deflationary scenario. For more on deflation and how you can survive it, download Prechter's FREE 60-page Deflation Survival eBook , part of Prechter's NEW Deflation Survival Guide.


The following article was adapted from Robert Prechter's NEW Deflation Survival eBook , a 60-page compilation of Prechter's most important teachings and warnings about deflation.

By Robert Prechter, CMT

Myth 1: “War Will Bail Out the Economy”

Many people argue that war will bring both inflation and economic boom. Wars have not been fought in order to inflate money supplies. You might recall that Germany went utterly broke in 1923 via hyperinflation yet managed to start a world war 16 years later, which was surely not engaged in order to inflate the country's money supply. Nor are wars and inflated money supplies guarantors of economic boom.

The American colonies and the Confederate states each hyperinflated their currencies during wartime, but doing so did not help their economies; quite the opposite. With respect to war, the standard procedure today would be for the government to borrow to finance a war, which would not necessarily guarantee inflation. If new credit at current prices were unavailable, either the new debt could not be sold or it would “crowd out” other new debt. The U.S. could decide to inflate its currency as opposed to the credit supply.

As explained in Conquer the Crash , doing so would be seen today as a highly imprudent course, so it is unlikely, to say the least. If it were to occur anyway, the collapse of bond prices in response would neutralize the currency inflation until the credit markets were wiped out. Despite these arguments, I concede that war can be so disruptive, involving the destruction of goods and the curtailment of commercial services, that the environment from the standpoint of prices could end up appearing inflationary. To summarize my view, the monetary result may not be certain, but an inflationary result is hardly inevitable.

There is in fact a reliable relationship between monetary trends and war. A downturn in social mood towards defensiveness, anger and fear causes people to (1) withdraw credit from the marketplace, which reduces the credit supply and (2) get angry with one another, which eventually leads to a fight. That's why The Elliott Wave Theorist has been predicting both deflation and war. You cannot cure one with the other; they are results of the same cause.

Myth 2: “Deflation Will Cause a Run on the Dollar, Which Will Make Prices Rise”

This is an argument that deflation will cause inflation, which is untenable. In terms of domestic purchasing power, the dollar's value should rise in deflation. You will then be able to buy more of most goods and services.

It is unknown how the dollar will fare against other currencies , and there is no way to answer that question other than following Elliott wave patterns as they develop. From the standpoint of predicting deflation, the dollar's convertibility ratios are irrelevant. There may well be a “run on the dollar” against foreign currencies, but it would not be because of deflation. I think the impulse to predict a run on the dollar comes from people who own a lot of gold, silver or Swiss francs.

They feel the '70s returning, and so they envision the dollar falling against all of these alternatives. If deflation occurs, a concurrent drop in the dollar relative to other currencies would be for other reasons. Perhaps the dollar is overvalued because it has enjoyed reserve status for so long, which might make it fall relative to other currencies. If this is what you expect, what are you going to buy in the currency arena? The yen? Japan has been leading the way into the abyss. The Euro? Depression will wrack the European Union. Maybe the Swiss franc or the Singapore dollar. But these are technical questions, not challenges to deflation or domestic price behavior.

Myth 3: “Consumers Remain the Engine Driving the U.S. Economy”

Only producers can afford to buy things. A consumer qua consumer has no economic value or power.

The only way that consumers who are not (adequate) producers can buy things is to borrow the money. So when economists tell you that the consumer is holding up the economy, they mean that expanding credit is holding up the economy. This is a description of the problem , not the solution! The more the consumer goes into hock, the worse the problem gets, which is precisely the opposite of what economists are telling us. The more you hear that the consumer is propping up the economy, the more you know that the debt bubble is growing, and with it the risk of deflation.

For more on deflation, download Prechter's FREE 60-page Deflation Survival eBook or browse various deflation topics like those below:

Robert Prechter, Chartered Market Technician, is the world's foremost expert on and proponent of the deflationary scenario. Prechter is the founder and CEO of Elliott Wave International, author of Wall Street best-sellers Conquer the Crash and Elliott Wave Principle and editor of The Elliott Wave Theorist monthly market letter since 1979.


© 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