Deflating the Deflation Myth

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Deflating the Deflation Myth

Deflation "ogre" probably won"t come to life

Deflation "ogre" probably won"t come to life
http://s1.reutersmedia.net/resources/r/?m=02&d=20140119&t=2&i=830843519&w=580&fh=&fw=&ll=&pl=&r=CBREA0I1J6700

By Andy Bruce

LONDON Sun Jan 19, 2014 2:51pm EST

A delegate is silhouetted as she passes by a sign for the annual meeting of the World Economic Forum (WEF) in Davos January 26, 2013.

Credit: Reuters/Pascal Lauener

LONDON (Reuters) – Talk that some of the world’s major developed countries are flirting with deflation, a damaging and sustained spiral of falling prices, probably won’t turn to reality, according to the consensus of market economists.

Described last week by the head of the International Monetary Fund as the “ogre that must be fought”, deflation is so feared because it sparks a vicious cycle of behavior that is difficult to reverse – as the last 20 years in Japan has shown.

If consumers and businesses start to expect prices of goods and services to fall in future they will postpone spending, depressing the economy and causing prices to fall further.

But that is not on the cards, according to hundreds of economists polled last week.

While inflation will remain weak through this year for most developed countries, none of the more than 150 economists polled by Reuters forecast even a quarter of consumer price declines in any of the Group of Seven countries.

“We think the threat of deflation is somewhat overdone. The obvious comparison is with Japan in the 1990s and 2000s, where there was genuinely a deflationary situation,” said Philip Shaw, chief economist at Investec.

“But the Japanese experience suggests that deflation is much more of a risk when credit institutions have broken down. And that isn’t the case for the majority of developed economies.”

Although credit flows in the euro zone are weak and some banks might need recapitalizing, Shaw argues their situation is still healthier than that of Japan 15 years ago.

NO COMPLACENCY

In any case, the weakness of inflation will likely preoccupy central bankers from major industrialized countries at this week’s meeting of politicians and policymakers at the World Economic Forum in Davos, Switzerland.

“It looks as though low inflation is a reflection of the waning powers of central banks as they have resorted to unconventional monetary stimulus measures,” wrote Stephen King, group chief economist at HSBC, in an outlook for the world economy.

“It is already abundantly obvious that unconventional policies have had a bigger impact on financial asset values than on the real economy.”

Even if market economists think deflation an unlikely scenario, few would argue it should be treated lightly by policymakers.

As the severe global recession of 2009 showed, the consensus of market economists and policymakers alike can be completely wrong.

“The IMF has to show it’s not being complacent,” said Shaw.

“But with regard to the recovery potential, I’d be much more concerned if inflation jumped up because of a surge of energy prices and food costs, as we saw in 2011.”

IMF Managing Director Christine Lagarde’s deflation ogre may seem a distant menace to many forecasters, but they were largely in agreement with her on the outlook for the global economy – namely that its growth should pick up this year.

Last week’s Reuters poll showed the world economy will snap a three-year run of slowing growth by expanding 3.6 percent this year compared with 2.9 percent in 2013 – almost exactly in line with the IMF’s forecasts.

RICH-POOR GAP

How the spoils of that growth will be split will be a key theme of this year’s Davos meeting, starting on Wednesday.

A chronic gap between rich and poor is yawning wider, posing the biggest single risk to the world in 2014, even as economies in many countries start to recover, the World Economic Forum said on Thursday.

Its annual assessment of global dangers, which will set the scene for its meeting in Davos, concludes that income disparity and attendant social unrest are the issues most likely to have a big impact on the world economy in the next decade.

This week’s economic data will at least give an early flavor of whether the global economy is on track to meet expectations of faster growth, and where it might be centered.

Markit’s first batch of purchasing managers indexes (PMI) of 2014, due on Thursday, will show how the world’s manufacturers started the year in the United States, the euro zone and China.

The Chinese PMI could prove to be of particular interest, given the mixed readings from industrial indicators towards the end of last year in the world’s second-biggest economy.

Scores of factories in China’s manufacturing heartlands have closed earlier than usual for the country’s biggest annual holiday due to weak orders and rising costs, workers and owners say, suggesting a rocky outlook for a key sector of the economy.

Housing sales figures in the United States and January’s consumer confidence reading for the euro zone, both on Thursday, make up the rest of the key data for this week. Economists expect a modest improvement on both fronts.

(Editing by Greg Mahlich)

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Reuters: Business News

Read more about Deflation "ogre" probably won"t come to life and other interesting subjects concerning Business at TheDailyNewsReport.com

Christine Lagarde Warns of Lord Voldemort, Hopes to Put Deflation Ogre in a Bottle

In a speech at the National Press Club in Washington, IMF managing director stated “If inflation is the genie, then deflation is the ogre that must be fought decisively.”

With that sentence Lagarde did something most central banks won’t: discuss Lord Voldemort, the deflation ogre, by name.

Please consider Christine Lagarde warns of growing threat of deflation.

“With inflation running below many central banks’ targets, we see rising risks of deflation, which could prove disastrous for the recovery,” said Ms Lagarde, in a speech at the National Press Club in Washington. “If inflation is the genie, then deflation is the ogre that must be fought decisively.”

With central bankers afraid even to mention the word “deflation”, Ms Lagarde’s remarks make her the first high-profile policy maker to give warning that extremely low inflation in rich countries could result in the kind of falling prices that have dogged Japan’s economy for two decades.

Ms Lagarde’s comments were echoed by Charles Evans, president of the Chicago Fed. “The recent news on inflation has not been good,” he said in a speech on Wednesday. “Inflation is too low and is running well below the FOMC’s 2 per cent target.”

Time to Unbottle the Inflation Genie

Clearly Lagarde wants to unbottle the inflation genie. How do I know the inflation genie is in a bottle? Well the ECB told us so in December of 2005.

Here is proof the monster was captured:

The above images is from a self-serving ECB video that attempts to brainwash school kids and teachers about ECB definition of “price stability“.

The wizards’ main worry now is “You-Know-Who” and “He-Who-Must-Not-Be-Named“.

At a recent conference of economic wizards, Lagarde dares to speak the unspeakable: “Lord Voldemort is on the loose”.

Charlatans or Wizards?

In reality, charlatans like Christine Lagarde and all the alleged central bankers wizards would not know “price stability” if it flew up and bit off their noses.

For a thorough trashing of the propaganda spouted by the central bank wizards, please see Money as Communication: A Purposely “Non-Educational” Fallacious Video by the Atlanta Fed

Looking for Real Economic Wizards?

I am pleased to again mention that John Hussman is a speaker and host of the second annual Wine Country Conference will be held May 1st & 2nd, 2014.

We have an exciting lineup of speakers for this year’s conference.

• John Hussman: Founder of Hussman Funds, Director of the John P. Hussman Foundation which is dedicated to providing life-changing assistance through medical research


• Steen Jakobsen: Chief Economist of Saxo Bank


• Stephanie Pomboy: Founder of MacroMavens macroeconomic research


• David Stockman: Ronald Reagan’s budget director, best-selling author, former Managing Director of The Blackstone Group 


• Mebane Faber: Co-founder and the Chief Investment Officer of Cambria Investment Management


• Jim Bruce: Producer, Director, and Writer of Money For Nothing: Inside the Federal Reserve 


• Chris Martenson: Reknown speaker and founder of Peak Prosperity


• Mike “Mish” Shedlock: Investment advisor for Sitka Pacific and Founder of Mish’s Global Economic Trend Analysis

In addition, we expect confirmation from a number of other highly respected fund managers and speakers. This year’s event is two days and will include additional “break-out” groups.

For speaker bios, please check out Wine Country Conference Speakers.

This Year’s Cause: Autism

$ 100,000 of the money raised last year came from a generous matching grant from the John P. Hussman Foundation.

Some of us in the industry who have done well are making an effort to make a difference. John Hussman is at the very top of that list.

One of John’s kids has severe autism. This year, all net proceeds will go to support autism programs.

Conference Details

For further details about the 2014 conference, please see Wine Country Conference May 1st & 2nd, 2014

Nothing Like It!

This event is not just another “come and hear someone talk” kind of thing. Attendees and their significant others can expect an educational, fun, and relaxed time.

Last conference, we arranged wine tours. They were a big hit. We will do so again. One of the wine estates we visited had a Bocce Ball court. On a couple of miracle shots, I won both games I played.

Stay an extra day and golf or travel. I did. The conference hotel is a fun place in and of itself.

Unlike many other conferences, you will have easy access to speakers.

Want to chat with me, Steen, John, or anyone else at the conference? You will have an easy chance.

Not only do we have an excellent lineup of speakers, you will have an opportunity to meet with them, have intimate discussions on important investment topics, with a lot of fun on the side, including wine tours and great wine.

There’s nothing like it in the investment business. And your money goes to a great cause! What can be better?

Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com

Mike “Mish” Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Mish’s Global Economic Trend Analysis

Christine Lagarde Warns of Lord Voldemort, Hopes to Put Deflation Ogre in a Bottle

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