Steen Jakobsen On The Next 30 Years: "Everything Is Deflationary"

Tyler Durden's picture

Authored by Mike Shedlock via,

Steen Jakobsen, Saxo Bank chief economist and CIO just pinged me with a PowerPoint presentation on the preceding and next 30 years.

He commented “I somehow to my own surprise came to one single trend I believe in: everything is deflationary. Enjoy the “funny pictures” and the outlook.”

30 Years Ago

Current and Foreward Trends

Mish Comments

I agree with Steen that the trends are deflationary from a CPI perspective.

Compare the GMO 7-Year returns estimate to the John Bogle view. I believe GMO has this correct.

Public pensions are in serious trouble even on the more optimistic view.

Credit Impulse

Pay close attention to the global credit impulse chart. Credit impulse is the “Rate of Change of Change” of global credit creation/QE.

The Stevens Report discusses the topic in Why “Credit Impulse” Matters to You.

There are many analysts and investors who believe that the entire ’09-’17 stock rally is nothing more than the result of a historic, globally coordinated credit creation event from the world’s major central banks. Put in layman’s terms, every major central bank in the world has done QE at some stage over the past eight years, and pumped the world full on cash. So, all they’ve done is create massive asset inflation in bonds, stocks and real estate.


While there is no hard proof that this global expansion of credit has powered US (and now global) stocks higher, there certainly is at least a casual relationship if we look at history.


The reason I am pointing this out is simple: There are growing signs that the near-decade-long global credit creation/QE cycle appears to be nearing the end. First, there are the central bank actions. The Fed is hiking rates, and likely taking steps to reduce its balance sheet, draining liquidity from the system.


Second, the ECB appears to be on the verge of tapering its QE program, and while that will still result in a net credit increase for the next year, the pace of credit creation will slow. Finally, and perhaps most importantly, China continues to aggressively reduce credit in its economy, and I’ll again remind everyone the last time they did that, we got the volatility in 2H ’15.


This is where the “Credit Impulse” comes in.


Credit Impulse is a term used by various research firms that measures the “Rate of Change of Change” of global credit creation/QE. Put simply, while the global amount of credit may still be rising, the pace of the increase has not only slowed… it’s turned negative. Similar to taking your foot off the gas while you’re still going forward. It’s just a matter of time until you stop.


Getting more granular, UBS has been out front on this issue, and back in February noted that Credit Impulse turned negative. In a much-anticipated report out last week, the firm said that the decline over the past three-to-four months has accelerated, with Credit Impulse dropping to -0.6% annualized over the past three months.


Now, Credit Impulse is a composite of various measures of credit, including loans, loan demand, and other metrics, so this is not a hard-and-fast number. And the fact that it has turned negative doesn’t mean we’re looking at an impending collapse in stocks.


But if we look at the entire picture, negative Credit Impulse; a more-hawkish-than-expected Fed that’s apparently committed to reducing its balance sheet, a Chinese central bank that is apparently committed to reducing credit in that economy, and an ECB that will begin tapering QE in 2018… the fact is we appear to be nearing the end of the post-financial-crisis credit expansion, and with economic growth where it is, I cannot see how that will be positive for stocks longer term.


Bottom line, I’m not turning into ZeroHedge (although they are all over this), but the fact is that I sense a lot of complacency regarding the end of this global credit creation cycle.

Credit Impulse Update

Also consider comments on the Global Credit Impulse by Adam Tooze.

In late Feb 2017, UBS’ analyst Arend Kapteyn reported that a measure of global credit impulse covering 77% of the world economy was behaving rather alarmingly. After growing vigorously in 2015 and 2016 thanks to another round of Chinese stimulus the credit impulse had collapsed to zero.

Since then the news is worse with the global credit impulse indicator falling earlier this month to negative numbers not seen since the bubble burst. This should be a strong leading indicator of a fall in investment and contractionary pressures in the world economy.

Wrapping up the global credit impulse, ZeroHedge discussed it in Why The (Collapsing) Global Credit Impulse Is All That Matters: Citi Explains.

Complete Powerpoint

Once again Steen made an excellent presentation. It consists of 28 slides. I used 14 of them.

Click on Investment Returns Plus/Minus 30 Years for Steen’s full presentation at the 30th Anniversary CFA Annual Forecast Event, Singapore July, 2017.

Thanks, Steen!

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hedgeless_horseman's picture


When your only tool is a printing press...

"Everything is deflationary."

Stuck on Zero's picture

How does deflation in the U.S. work when the dollar drops 50% in value?

Mercury's picture
Steen Jakobsen On The Next 30 Years: "Everything Is Deflationary"


Everything is deflationary except real estate, education, healthcare and anything that doesn't involve sitting on your ass in front of passive, electronic entertainment.

Thanks for the negative alpha Steen.

hedgeless_horseman's picture


I would have thought that Mish and Steen both understand that the "30 year trend" and "10 yr US yield" charts are both inflationary.

Price moves in the opposite direction of yield.


Where do they think most of the QE inflation is hiding?  

It is in artificially low rates and high stock markets.

Dammit Walter's picture

Good point, Mr. HH.  However, advancements in technology are inherently deflationary and beneficial to productivity.  CBs, fearful of deflation, force the rates to ZIRP/NIRP to counteract the deflationary forces which is a distortive signal which will cause all sorts of unsustainable malinvestments.  It is critical to understand EROI to determine what is unsustainable.  Shale producers for example?

gatorengineer's picture

Well doesnt particularly make sense when you figure that the $ volume of stock buybacks, the presses effectively cancelled shares of stock is where the QE Largely went.

Dammit Walter's picture

How do you figure an increase of stock prices equal "cancelled shares"?  Every share is still owned, just that the owners transferred from whomever owned before to corporate buyers.   This is just hot money moving to find yield higher than FED/Bank/Bond yields.  Aka malinvestment.  It is risky as hell too because corps are buying high (buying back shares at all time highs), probably only to raise cash at all time lows when the distorted market crashes under the unsustainable conditions.  At that point corp buy backs will be worth "less" than they bought the shares at.  Meanwhile C-suites will collect their performance bonuses and extract the wealth from the companies and the shareholders and abscond to their elite bunkers to wait out the collapse.



NidStyles's picture

It doesn't. Fiat causes the economy and advances to slow to a crawl... imagine that there wasn't a multi-trillion dollar financial sector sucking up so many resources to just enrich do nothing bankers.

Now imagine what our society would look like without those same bankers...

As I was saying yesterday, automate the banks and fire all of the bankers, half of our problems would be solved. Pay the Fed off with a Treasury coin and then change legal tender laws outlawing its use. Fuck those people. They don't want to provide real value then they should be ostracized.

We don't need these people, but they obviously need us.

Conscious Reviver's picture

In a better world, banks would be an automated utility.

As to this Steen guy, going to other planets and glpbal warming? No wonder he gives it away for free.

lasvegaspersona's picture

Hyperinflation is the systems response to deflation.

No country will allow its currency to become too overvalued. They would rather print more and enjoy the benefits. 

To save the system from deflation they print...sometimes they get it wrong.

Jack's Raging Bile Duct's picture

Many of the world's economies post-WWII became merchantilistic due to Bretton Woods. Compound that with debt based monetary systems and nobody can find a way off of the current carosel without crashing it. Governments around the world will impoverish their captives to the last before risking the current status quo.

djealas's picture

I've been listening to the inflation/deflation arguments for 30 years, and have come to the conclusion that they are both in play, all the time, but in different sectors. There is no full deflation/inflation at play anymore, because even though financial doom is always just around the corner, it hasn't happened yet, so neither condition is predominant.

No offense to Mish or anyone with financial expertise,but none of them really understands either inflation or deflation fully. I know it takes more money for me to buy groceries than it used to. I know my money doesn't go nearly as far because there is almost no interest on it. I know that cash is king when the power shuts down. I know its tough as hell to make money in the markets, unless you have insider information, so I'll stick to what's always done well for me, like gold.

The inflation/deflation argument is no longer essential to financial understanding, because we have never had the conditions that exist, right now, in the history of, well, ever. We are perched on a financial knife edge, and all the discussion about inflation or deflation is meaningless. Until the house of cards crumbles, then who gives a shit?

Jack's Raging Bile Duct's picture

I'm getting tired of this discussion, too. We know what it's called. They named in in the 1970s. It's called Stagflation. Base inputs are more expensive (land, energy, capital goods) due to inflation, while outputs (finished products) are less expensive because nobody has money (deflation). The problem with stagflation, is that most of the key things for living become more difficult to acquire. The only people that win are the banksters and politicians.

RubyPetunia's picture

The biggest danger facing the emerging markets is corruption. An honest, free market punches far above its weight with regard to population.

Peak Finance's picture

Fastasy Island. So much wrong here I don't even know where to begin. 

"Debt Mountain Needs to Be Addresses" - This will NEVER HAPPEN. The entire establishment will have to admitt their 100+ year-old economic experiment in Kensyan / MMT was a complete failure. Like I said, will never happen, it's printing all the way to the moon. 


Two Theives and a Liar's picture

Thought-provoking article. Good ZH red meat without the "filler" we see around here lately. I think there will be BOTH insane inflation AND deflation. We see this already. Go to an electronics store (deflation) then to a grocery store (inflation).

In terms of monetary policy there is ONLY inflation. 

Thanks Tyler/MISH

centerline's picture

Inflation in the things we really need.  Deflation in the things we dont need so much.  Yup.  Cost push on one side and demand pull on the other.  The system is imploding.  Mountains of debt that simply wont be paid back. 

Philo Beddoe's picture

I gave up on fresh vegetables and just gnaw on my big screen tv. 

Yes We Can. But Lets Not.'s picture

Groceries remain dirt cheap.  18 eggs for a buck, regular price.  etc, etc, etc.

Soul Glow's picture

Come to Hiroshima!  Everything is wonderful!

Hiroshima tourism advertorial -

Nobodys Home's picture

Where's the Fukushima advertorial?

Soul Glow's picture

Strap on your biohazard suit!  Come enjoy the tuna!

Quantum Bunk's picture

Dumb article.

Deflation is the most misunderstood and confusing concept in economics.


Currecies either apprecieate or depreciate. Asset prices either rise or fall. There is no need for this word deflation.

Peak Finance's picture

I agree. That was my first thought when I saw a picture of a smaller cell phone in an article on deflation. Like WTF?

Deflation is a contraction in the money supply. Tha's it. And this very simple econimic concept has huige effects on the economy.  

centerline's picture

Deflation can also be defined as a lowering/dropping of prices and services.  It is possible for central banks to print like mofos and deflation still occurs.  Herein, the funny money goes to banks and is not circulated.  Money velocity does not go anywhere.  Funny money also flows elsewhere (foreign countries) where the demand for dollars remains high.

Quantum Bunk's picture

Yes but that is more simply discribed as a stabe value currency (despite printing) or appreciating currency instead of "deflation".

centerline's picture

Most of the crap tossed out is closed system theory.  Simple explanations for complicated systems.  Complete horseshit in my opinion.  For example... show me one economic theory that address the long term effects of the "skim" that occurs because those closest to the money creation process have a distinct advantage.  It is nothing more than modern day fuedalism disguised as whatever else governments want to call it.  Smoke and mirrors.

Peak Finance's picture

Well of course that's the MMT defination of deflation whch they made-up to try to disconnect inflation / deflation from the money supply.

If bankers are printing like crazy and deflation is occuring, this is becuase people / companies / governments are fearful of the future are using this money to extinguish debt. 



centerline's picture

+1 for sure PF.  The -flation definitions get jacked around so much they become tools to confuse the masses.


how_this_stuff_works's picture

Inflation: Too much money chasing too few goods. Deflation: Too little money chasing too many goods.

Too much money is certainly NOT the problem. Thanks Obama.

Juggernaut x2's picture

Sure - blame Obummer and ignore the value of the USD since 1913

blindfaith's picture


I guess you were on vacation for the last 8.6 years.  Time to bone up with and on Barry.'s legacy.

how_this_stuff_works's picture

The rising cost of purchasing medical insurance, along with medical procedures and equipment, might well be remembered as the straw that broke the camel's back (of the economy).

And yes, for that I blame Oblamo.

centerline's picture

Demographic wave is going to cause an epic wipeout.  Already in motion actually.  Real estate largely the backbone of the system because it is the underlying collateral.  It is being propped up at all costs.  Likewise, the medical-scam system is being propped up as well.  Annnnd... same for government pensions.  This ought to speak volumes about what is coming... because it is what they are trying desperately to avoid right now.

GeezerGeek's picture

Home-owning boomers dying off will result, if what we've been fed is true, in an excess of empty basements.

wisehiney's picture

TLT baby!

QE is billions.

Credit market is trillions.

ToSoft4Truth's picture

Billions??  QE 3 ended 10/14.


"At the tail end of 2008, the Fed cut its benchmark short-term lending rate to a record low to spur growth, then made an historic move. It began the first round of QE, buying $100 billion in bonds backed by mortgages every month. The Bush administration had already hatched a number of rescue programs aimed at patching up the banking system, and so the Fed’s initial step met little resistance."


"Now, $4 trillion later, QE is drawing to a close, so the question is: Did it work?"

wisehiney's picture


And now watch what happens.

They have fought deflation tooth and nail.

When they hit the zero bound, they were fucked.

Negative rates turn assets into liabilities.

Now, after all these years, they are trying to psych the world into believing that HIGHER rates are the cure.


Deflation it is.

They will freak out soon and hit the QE button again.

They are so fun to play with.


P.S. Check out ongoing EU and BOJ and BOC QE.

Beyond Organics's picture

Sans income producing assets.

I Write Code's picture

Every day in every way everything is getting more awesome.

Consuelo's picture



Same tired old argument that was trotted out constantly on that site during the 2008 - 2011 period, not stop...

Not a word however, on what is hiding in plain sight, right underneath their deflationary noses:

Loss of $purchasing power...

blindfaith's picture beat me to the punch on that one.

It is called...'ain't got no fucking dough bro"

All these "highly educated economists' have no 'fly over' knowledge whatsoever, when it is all caviar and brie for them.

You can feel the music stopping.  Selling on ebay for a living? Somewhere else, like Amazon?  Don't you feel like you should go on a 'low income' diet with something like ONE box of Uncle Warren's Kraft Mac & Cheese in a box to feed you and your 4 kids?

Gone shopping lately and seen any other shoppers?  Is you mall turning into a gang hangout?

Deflation indeed. Unless it becomes FREE, who will buy tomorrow?

LawsofPhysics's picture



Another disingenuous fuck.  Yeah, deflation in the human population...  ...maybe.

centerline's picture

That is really what it boils down one way or another.  Which makes for an interest entry point for analysis as opposed to all the "economic theory" bullshit.  Big wave of boomers... birth/death rates inverting... fertility down... obesity up... additictions up... mobility down... etc. and so on. 

Two Theives and a Liar's picture

I'm sure the population deflation is simply entropy and TPTB have nothing to do with it! /s


7mm08's picture

I'm pretty sure the author must have meant "neurons" not "neutrons"....but otherwise I'd agree with this article