by Bob Stokes
Updated: October 14, 2015
On April 29, 2014, a famous hedge fund manager said this:
"Either scenario...asteroids hitting the earth or a major solar storm that could bring down the power grid...is more likely to happen than...deflation."
The May 2014 Elliott Wave Theorist mentioned that quote and in reply said:
"We would give the same probability to avoiding deflation."
Today, of course, deflation is a real and present danger to the world's three largest economies.
Let's start with the United States. In August, the U.S. was only a few states away from a negative consumer price index :
Excluding the West, the national rate of inflation as measured by the CPI would have been -0.19 percent in August, as compared to the already anemic national rate of 0.2 percent (CNBC, Oct. 13).
China is the world's second largest economy. Bloomberg recently offered this quote from a chief economist at a securities firm in Beijing:
"It's clear that price pressures are on the deflationary side."
This chart shows that China's Consumer Price Index has been trending lower since mid-2011:
China's CPI slowed from a 2% rise in August to a 1.6% increase in September. More than that, "the producer-price index fell 5.9 percent, extending its streak of negative readings to 43 months."
As for the world's third largest economy, Japan has struggled with deflation for 25 years. The Land of the Rising Sun continues to grapple with this demon -- even after unprecedented monetary stimulus.
Here's a September 25 Financial Times headline:
Japan falls back into deflation for first time since 2013
Deflation in the world's three biggest economies is sobering enough. Yet the threat of this rare economic trend has a still-wider global reach.
Here's another headline (Bloomberg, August 11)
Deflation Stalks the Euro Zone
Again, this is despite massive injections of monetary stimulus.
The global deflationary trend may soon be obvious to all.
The time to learn about this potential economic earthquake is before it arrives. Twelve times a year, Bob gives you his inimitable view of the bigger picture, covering markets, credit and debt, inflation/deflation and social trends in his Elliott Wave Theorist.