15-20 YEARS OF DEFLATION?
27 June 2009 by TPC
9 Comments
That’s what renowned economist Dr. Lacy Hunt is calling for.
- The US is in a period of debt deflation that may take up to 15 to 20 years to normalise
- The S&P is at risk of some ‘false dawns’
- There will be a major shift in US consumer behaviour as savings start to rise and people live more within their means
- He describes the US stimulus in its current form as a grab bag of political promises and says it may be doing even more damage
- Diversified equity portfolio models may not work in the debt deflation environment
Read the full article here.
*Thanks to reader DF
More on this topic
(What's this?)
David Rosenberg: Primary Trend Is One Of Deflation
(Short-Term Trading, 2/18/10)
Mauldin Says Deflation Is Coming: Why He Is Wrong, Stuck "Inside the Box" & Hopelessly Conflicted
(REIT Wrecks, 7/9/09)
The US Dollar, Inflation, and Deflation
(Oxbury Publishing, 3/10/10)
How We Get Out of a Deflationary Debt Spiral
(Gold Versus Paper, 2/25/10)
Using some macro economic constructs for illustration purposes, there are two types of capital goods. High order capital goods (HOCG – such as real estate, autos, art) and Low order capital goods (LOCG – staples we use in every day life, food, clothing e.t.c.). The HOCG category indeed exhibits deflationary pressures with many malinvestments, the great majority of which will be abandoned, restructured and repositioned. The LOCG category though, affecting all citizens, can experience inflationary pressures (a bad crop year will increase prices on all ag commodities for example). Therefore deflation, eventhough significant for the financial world, might not be the elevated global concern of the masses.
Dean:
Good point.
However, rising costs for food, clothing (and energy), will simply take money away from other purchases to cover those rising costs. So . . . in essence, the inflation in LOCG will have deflationary impacts elsewhere, and thus further fueling deflation.
Ironic as it may sound, inflation fuels deflation.
EXACTLY!!!! Inflationistas are goofy as hell. It means nothing.
DEFLATION IS HERE TO STAY for at least 5-7 years, how many times must this be said.
Show me one inflationary aspect and I’ll believe it. Debt must be defaulted. The inflation required to change this would alter the entire system and thus, I do not believe it will happen.
I don’t know about these historians. They sound smart, but what can they really teach us? The esteemed dude here cites 3 periods of debt deflation in the last 150 years, one of which is Japan. Well, okay, let’s talk about Japan, the supposed nightmare to end all nightmares. How bad has life been there in the last 20 years? Not much like the Great Depression. Not much like it at all. Economic data looks like hell. But day to day life seems pretty far north of okay. So what’s the huge worry all about?
As for comparisons to the comparisons to the Great Depression and the 1870s, that’s just nonsense. The US economy bears ZERO resemblance to the 1930s, to say nothing of the 1870s. ZERO.
So if you make your living looking at 1870 and arguing that it means a lot about where we are now, well, guess what? YOU, SIR, ARE A DRAIN ON THE ECONOMY, BECAUSE YOU’RE GETTING PAID WELL TO CONTRIBUTE NOTHING.
there is no doubt that we are so screwed…..
deflation will hamper the US for some period of time
while commodity prices soar….taking away even more disposable income
solution – i cant think of one
what about the other problems that we are encountering now and soon….
* public sector pensions (with companies canceling pension plans and replacing then with higher matching in the 401Ks…(what a joke)….and therefore private sector employees not having enuff for retirement, who will be subsidizing the private sector retirement entitlements…….EXPECT TO SEE ALOT OF NEW TIERS FOR PUBLIC SECTOR EMPLOYEES IN THE FUTURE….on the same rant…it sure seems like the teachers and policemen of now, will retire, with great medical and pension benefits….coming out way way ahead of the “higher paying” private sector jobs….
* property tax increases are unsustainable….and couple that with the fact that in states in which almost every middle class family is hit with the AMT, most of such taxes (or tax increases) do not qualify as a tax deductible expense….taxes will be higher than mortgages…..
* baby boomers will have no one to sell their house(s)to…..cause the next generation is so f*d
* deflation (my guess) will be here first…if i am wrong, then inflation….BOTH HORRIBLE
* sorry, i am ranting……
again…i cant think of any solution
things ARE bad
only solution, very high taxes…..aka socialism…..
E,
I have a damn solution. Bring back the division that does not allow commercial banks to trade and remove them from their CFTC exception regarding commodities.
That would be two big fucking steps in the right direction. Of course, that will never happen, because the only profits to be had by these fools, until cap and trade passes, is by trading.
Prescient11, seems like you read the Goldman article in the RS mag, i just finished it this morning in fact…..
its a must read….
i am sure you have read Durden’s blog and the ruckus on insider trading….
but alas…..this is no stopping the corruption, so sad, dont yah think?
(i guess i wouldn’t care if i was one of the millions of blind lemmings dollar cost averaging into the market………….what a bunch of maroons, imbesills)
“only solution, very high taxes…..aka socialism….. ”
Well, it isn’t so bad if the politicians aren’t corrupt. Sweden and Germany have high taxes and those countries aren’t hellholes.
In terms of debt to GDP, which is what Hunt’s whole premise is based on, our economy looks much worse than the 1870s and 1930s. We will not see soup lines but a decade of zero stock returns (we already have one so far) will make you think twice about your comments Joe P.
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