Attention: Deflation Is Here, What’s Next?

I have been arguing deflation with inflationists, goldbugs and the likes for years. To no avail. Today’s WSJ snippet (see below) confirms my view without a shadow of a doubt. There is no inflation as the central bank’s preferred inflation gauge slowed to an annual gain of less than 1%. Instead, we are in a deflationary environment where bad debt and credit defaults must be liquidated. 

This becomes even more evident when you think about the amount of liquidity the FED had pumped into our financial system over the last 5 years. Despite, QE, over $1 Trillion in liquidity, and other monetary stimulus, inflation gauge remains at 1%. Without such massive stimulus today’s deflationary environment would be more clear.

Well, let me correct myself. There has been massive inflation over the last few years. In the stock market, the real estate market and some other commodities. Most of the liquidity the FED had infused went right into speculation. When the bear market of 2014-2017 starts all of that inflation will vanish into thin air. Understanding this clearly plays an important role in your upcoming portfolio allocation. If you would be interested in learning when the bear market of 2014-2017 will start (to the day) and it’s internal composition, please Click Here.   

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Attention: Deflation Is Here, What’s Next? Google

WSJ Writes: Inflation Slows Again, Bouncing Around Four-Year Low

Inflation isn’t just going nowhere. It may be slipping again.

The Commerce Department’s latest read of consumer prices on Friday showed price pressures moving in a direction many Federal Reserve officials find uncomfortable. The personal consumption expenditures price index — the central bank’s preferred inflation gauge — slowed to an annual gain of less than 1%.

The PCE index’s 0.9% annual increase in February marked the weakest reading since October, when year-over-year inflation touched a four-year low.

The latest data suggests the U.S. faces little risk of rapidly accelerating inflation as the Fed slows the amount of stimulus it’s pumping into the economy. Earlier this month, the central bank said it would lower the pace of monthly bond buying by another $10 billion to $55 billion.

Friday’s report showed the pace of food inflation increased in February after holding virtually flat the previous five months. But that gain was largely offset by declining prices for long-lasting durable goods and energy last month.

The consumer price index, a separate inflation measure calculated by the Labor Department and released earlier this month, rose 1.1% in February from a year earlier. That, too, was a slowdown from January. 

Inflation or Deflation. What’s Next For The US?

Bloomberg Writes: Japanese Ask, What’s Wrong With a Little Deflation?

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As Haruhiko Kuroda tries to spur Japan (JGDPAGDP)’s inflation rate, he faces a worrying question: What if his Bank of Japan predecessor was right about why he will fail?

In June 2011, then-BOJ Governor Masaaki Shirakawa faced extreme pressure to double the monetary base, a step Kuroda took just days after replacing him in March. When Shirakawa, a University of Chicago-trained economist, was asked why he’d refused to budge, he offered a surprising excuse: Japan’s aging population, whose fixed incomes would be eaten away by rising prices. Politicians thought the rationale was a copout. Shinzo Abe’s first act as prime minister was to dump Shirakawa.

 “The only easy part is starting to print the money because it does not hurt anyone for the first year,” Schulz says. “But after that, when prices start to go up, it really depends on the view at that time: Will people only see the higher costs, or will they see the brighter future that the government is selling with its money? If they don’t, a turn in public opinion will stop the BOJ before expectations have changed enough to get the economy on an inflationary track.” Kuroda could yet prove his predecessor wrong, but he’s going to need help from his prime minister — and soon.

Read The Rest Of The Article Here

A superb article on deflation and I definitely recommend reading it in full.  

I have been a proponent that the US has been in a deflationary environment since at least the early 2000’s. I know there are a lot of people running around screaming inflation, but we must first define what inflation and deflation is. While there are many definitions, mine is …..Inflation is expansion of credit, while deflation is contraction of credit. Simple as that.

The reason most people believe we are experiencing or will experience inflation and/or hyperinflation is because of FED’s massive infusion of credit into the system over the last 10 years. Without it, we would have already seen concrete evidence of deflation all over the place.

Here is the situation. Deflation is destruction of credit and subsequent decline of prices due to defaults, overcapacity and the self feeding trend it generates. We have already started the process of deflation in two very important areas as % of GDP. Financial and real estate sector in both 2000-2003 and 2007-2009.

However, due to the FED’s crazy insistence on inflation they did paper over any sign of deflation by infusing massive amounts of credit and money supply into the US Financial system. What you have to understand is that such a move didn’t fix anything, it only made things worse and the upcoming recession more severe. Now with velocity of bailout money slowing down, more defaults and deflation is unavoidable.

That is where we find ourselves today. So, will the US experience a Japan style deflation? Yes and No. I will talk about it in more detail in my future writings.  

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