Subscribe: RSS Feed | Twitter | Facebook | Email
Home | Contact Us

Posts Tagged ‘deflation or inflation’

Why Deflation?

Posted by Larry Doyle on December 30th, 2009 10:03 AM |

My better half asked me today why I thought deflation was likely to be a major problem for us over the next decade. I shared my views on excessive debt, challenging job prospects, excess capacity, and the like. All that said, I’m a former Wall Street trader and not a Secretary of Labor. What does somebody who filled that slot think? Let’s listen to Robert Reich, who headed the Department of Labor during the Clinton administration.

Reich provides a substantive review on the vastly diverging developments on Wall Street and Main Street in a recent commentary posted at Wall Street Pit.  While asset valuations have rebounded across a wide segment of the markets, the fact is the fundamentals within our economy are clearly deflationary. Reich highlights as much in writing: (more…)


Posted by Larry Doyle on December 27th, 2009 7:52 AM |

Although the American consumer is much more accustomed to inflation and the threat of inflation, I am increasingly convinced that the threat of deflation remains the greater challenge. This battle between macroeconomic deflationary forces versus governmental supported inflationary programs is THE ultimate issue facing our economy in 2010 and beyond.

We hear very little about deflation from Bernanke, Geithner, or other central bankers here in the United States. Why not? If they were to even bring attention to it, I think they would cause a stir and legitimize the underlying deflationary forces at work in our economy.  What do we hear? Continuous platitudes about how inflation is under control. Remember that the primary mandate of the Federal Reserve is to work to achieve stable prices. How is it going about that currently? Massive federal programs including ballooning the Fed’s balance sheet to prop the economy and prices from the weight of deflationary forces. How and why have these deflationary forces developed? Excessive debt throughout large sectors of our economy. (more…)

David Levy Provides Sense on Cents

Posted by Larry Doyle on December 7th, 2009 2:50 PM |

I enjoy coming across individuals whom I have not previously met or read. Why? Individuals with new insights and perspectives provide real mental stimulus especially during challenging economic periods. I engaged just such an individual this morning in reading CFO Magazine. David Levy of the Jerome Levy Forecasting Center was recently interviewed and provided some fabulous insights on the economy, deflation, corporate earnings, bank balance sheets, and assorted other hot topics. This interview, entitled A Contained Depression, is a must read:

If you’re breathing a little easier because the Great Recession seems to be ending, consider this: the U.S. economy may remain in a “contained depression” for months or years to come. That warning comes from economist David Levy, chairman of the Jerome Levy Forecasting Center, an economic research and consulting firm. Levy originally coined the term to describe the recession of 1990–1991 and the subsequent halting, jobless recovery. Earlier this week, he talked with CFO about the prospect of a similar scenario unfolding today. An edited version of the interview follows.

What is the state of the economy today?
We’re in for a much longer period of contained depression [than we saw in the 1990s]. The single most overlooked observation about the U.S. economy in the postwar period is that balance sheets grew faster than incomes, decade after decade, both assets and liabilities. The problem is that asset values have to be justified by returns they can earn — or by expectations of future capital gains, and that’s where you get into bubbles. What went on in the postwar period couldn’t go on indefinitely. We were able to make it go on longer by dropping interest rates in the last two recessions, but we can’t do that anymore. We have to shrink the value of assets on balance sheets and shrink liabilities. And that makes it very difficult for the economy to operate. (more…)

Recent Posts