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Is Another Deflationary Spiral About to Hit?
Central Bankers are flummoxed.
Having cut interest rates over 600 times since 2009 (and printed over $15 trillion), they’ve yet to generate the expected economic growth.
This failure hasn’t produced any change in their chosen course of action. The Bank of Japan (BoJ) and the European Central Bank (ECB) are both currently engaged in QE programs. The US Federal Reserve is the only major bank not to be employed QE, though it does continue to expand its balance sheet every month during Options Expiration weeks.
Regarding interest rates, the ECB has already moved to employ Negative Interest Rate Policy (NIRP). The BoJ and the Fed are still at ZIRP, though the latter has several officials who have begun calling for NIRP.
Why, after six years, are we still seeing such aggressive policies?
Because deflation, the bad kind, is once again lurking around the corner.
Anyone with a functioning brain knows that deflation is a good thing. No one complains when they are able to buy something at a lower price, whether it is a home, gasoline, or computer.
However, debt deflation is a different story. Debt deflation means that future debt payments are becoming more expensive. This means that debt servicing will become more difficult, eventually leading to default and debt restructuring.
It is debt deflation that remains the primary focus for the global Central banks. Indeed, if you consider the threat of debt deflation, every Central Bank move makes sense. ZIRP, NIRP, and QE all have the same goal in mind: to lower interest rates and push bonds higher (thereby making sovereign debt loads more serviceable).
With this in mind, even a whiff of debt deflation is enough to give Central Bankers nightmares. It’s also why they are so fond of inflation via currency devaluation, as it permits them to render massive debt loads more serviceable.
Unfortunately, the great “reflation experiment” is failing. Indeed, as Societe General has noted, it appears the developed world may be “turning Japanese” i.e. moving into a long-term deflationary cycle similar to that which has plagued Japan for the last 20 years.
This will eventually result in a stock market crash, very likely within the next 12 months... and smart investors would do well to prepare now before it hits.
If you've yet to take action to prepare for this, we offer a FREE investment report called the Financial Crisis "Round Two" Survival Guide that outlines simple, easy to follow strategies you can use to not only protect your portfolio from it, but actually produce profits.
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Best Regards
Graham Summers
Chief Market Strategist
Phoenix Capital Research
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DEFLATION == GOOD.
DEFAULT == NECESSARY.
DEBT == VERY UNHEALTHY.
Bank tactics will come to be recognized as nothing more than 'Beneath Interest Rate Policy': BIRP.
We used to remark that the only thing worse than inflation was talking about it, and now we find the reverse is just as bad: Wherever you go, there you are.
the fed has unleashed the spiralchete virus on the economy
ABOUT to hit?
Look at the price of oil, copper, gold, iron ore, met coal, natural gas etc.
DEFLATIONARY SPIRAL IS ALREADY HERE.
Right you are. I was just telling my spouse the other day in the grocery store, "Geez, look at the price of this iron ore! Outrageous! Maybe the kids will like met coal just as well." She responded, "Even the met coal is expensive. See . . .". I then said, "It's getting harder and harder to make ends meet." She quickly replied, "Well, thank goodness for deflation. At least we have that."
Cute joke but has no meaning, I am getting very upset with people akin t yourself who make jokes, (hahaha ha am I not smart) that serve no purpose. NO SIR you are not smart, You are the bufoon that the media aims at.
The people who work for a living do not need inflation. This bafflegab being shoved out of newspapers and media has this world convinced that a 2% inflation rate (which devalues fiat and makes the average person poorer) Is the target to be had at any cost. BS.
Only reason to encourage inflation as a policy is to constantly have the ability to rollover and rollupwards this massive debt bubble. I quote from 2014:
"Every year the levels of government debt as a percentage of GDP, for both emerging market and developed economies, continue to go higher and higher. As the ratios push out into uncharted territories, particularly in Europe's southern tier, the ability to "inflate away" debt through monetization remains the only means available to postpone default. Evans-Pritchard quotes a Bank of America analyst as saying that even "low inflation" (not to mention actual deflation) is the "biggest threat to the dynamics of public debt." IMF Managing Director Christine Lagarde ramped up the rhetoric further when she recently told the Washington Press Club that "deflation is the ogre that must be fought decisively." In other words, governments need inflation to remain viable. It's the drug they just can't do without. "
"But as this simple truth is just too embarrassing to admit, politicians and central bankers (and their academic, journalistic, and financial apologists) have concocted a variety of tortured theories as to why inflation is not just good for overly indebted governments, but an essential economic good for all. In a propaganda victory that even Goebbels would envy, it is now widely accepted that purchasing power must decrease for an economy to grow. " The article is here: http://www.europac.com/commentaries/governments_need_inflation_economies_dont Yeah these smart kids are scared as hell about deflation.