Asset prices and prices are falling rapidly as the impact of globalization credit permeates the global economy. Newspaper columnists are beginning to warn against the dangers of deflation.
What happens during deflation?
It’s important to understand that what happens during deflation is not a result of deflation itself. Rather, deflation itself and what happens during deflation are results of the same cause: a change in mass social mood.
Beyond the price effects of deflation, what happens during deflation can fill entire books. In his two-book set, Socionomics: The Science of History and Social Prediction, Robert Prechter dedicated several sections to what happens during deflation. The topic of what happens during deflation also inspired Prechter’s best-seller Conquer the Crash.
Deflation Threat? What Deflation Threat?
The deflation “recognition phase” has finally arrived. Kroger foods, Costco, and Walmart are blaming deflation for a drop in earnings. Moreover, many high profile names are discussing deflation, something most thought could never happen.
Here’s what famed economist Joseph Stiglitz says about deflation:
The U.S. faces the possibility of deflation for the first time since the Eisenhower administration, a threat that may prompt the Federal Reserve to keep interest rates near zero through next year.
Executives at Kroger Co., the largest U.S. supermarket chain, blamed deflation for a 7 percent drop in earnings in the second quarter, while falling prices for food, gasoline, and electronics left August sales unchanged at Costco Wholesale Corp. A sustained price drop might set off a chain reaction in which lower profits force employers to pare wages and payrolls. That would erode consumer demand, exacerbating wage cuts and firings.
“Deflation is definitely a threat right now,” Nobel laureate Joseph Stiglitz, 66, a professor at Columbia University in New York, said in a Sept. 22 interview. “The combination of the deflation threat and the sluggish recovery should keep the Fed on hold for quite a while.”
Original article by Howestreet’s Mish
Deflation taking root in global economies
By Brian Milner, Globe And mail
Fuelled by overcapacity, shrinking credit, reduced corporate spending and falling consumer demand, deflation is on the rise
Fuelled by continuing overcapacity, shrinking credit, reduced corporate spending and falling consumer demand, deflation is on the rise in its old stomping ground of Japan and taking root in the battered U.S. and European economies.
Consumer prices fell at their fastest clip ever last month in Japan, which has been fighting a losing war against deflation for much of the past two decades. Germany, Europe’s biggest economy, has now suffered through four consecutive months of sliding prices, and the rest of the region that uses the euro is not faring much better.
Original article By Brian Milner, Globe and mail
Japanese Deflation Is Unstoppable
By Vincent Fernando of Business Insider
Japanese deflation is accelerating. Consumer prices ex-food fell a whopping 2.4% in August, the largest decline ever since records began in 1971.
This beat even July’s previous record-breaking 2.2% drop. It was the sixth consecutive month of declines.
Even after stripping out both food and energy, prices still fell 0.9% year over year, as they did in July. This is one of the largest drops on record, only surpassed by a few months during 2001.
Original article by Vincent Fernando at Business Insider