Deflation Will Take the Majority by Surprise

By Elliott Wave International

The last thing on the minds of most people is deflation. It's easy enough to determine that with a quick quiz -- and that quiz is found in the just-published Elliott Wave Theorist.

In this July-August Theorist, Robert Prechter uses Google searches to make a point about deflation:

"When I typed 'Inflation for 2013,' there were 47,700 results. On March 13th, when I put this slide together, I also typed in "Deflation for 2013." How many results do you think I got?"

Prechter reveals that the answer is 5. (You could have googled it yourself, but we don't want you to have to take the time.) He then goes on to search other phrases pertaining to deflation and inflation, which you can learn more about via a risk-free read of the Theorist. Just know that the number of Google searches for "Deflation for 2013" was nowhere near the number of searches for "Inflation for 2013."

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2-page sample of Robert Prechter's Elliott Wave Theorist.

Yet, consider that the state of the economy remains precarious. For one thing, Detroit just became the largest American city ever to file for bankruptcy. But that's not the half of it.

An MSN Money article points out that municipal financial problems extend far beyond Detroit to cities like Chicago, Newark, New Haven, Baltimore and Louisville:

10 cities selling stuff to get by

When your finances are in trouble, sometimes you have to unload precious items to survive. For some cities, that means parting with sailboats, landmark buildings and even Santa Claus. (MSN Money, July 22)

Here's some irony: Almost no one expects deflation, yet consider this June 14 headline: "Millennials face uncertain future with part-time work." In other words, many young adults want full-time jobs but can find only part-time positions. This employment scenario is more in line with economic contraction than expansion.

This contrast between reality and the apparent lack of concern about deflation can be seen most remarkably in Europe:

Eurozone business still going backwards (CNNMoney, May 23, 2013)

This article quotes a market firm's chief economist, "Weakness remains broad-based, with Germany stagnating, France contracting steeply and the rest of the region also clearly entrenched in an ongoing downturn of worrying severity."

But this CNNMoney article barely scratches the surface of why Europeans and U.S. citizens alike should prepare for the most devastating of all financial trends -- deflation.

In a recent Theorist, Prechter writes: "Deflation nearly always manifests as a contraction in the amount of outstanding debt. Let's look at where we are in terms of debt in Europe and the United States. ..."

See what Prechter presents to subscribers of The Elliott Wave Theorist with no obligation for 30 days. The just-published September issue is packed with insights you won't see anywhere else. Preview what's inside and learn how to get your risk-free review.

This article was syndicated by Elliott Wave International and was originally published under the headline Deflation Will Take the Majority by Surprise.
EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

8 thoughts on “Deflation Will Take the Majority by Surprise

  1. We are always fighting the last war, and inflation is the one that everyone remembers. How can you forget when interests went to mid-teens? I think Prechter is right to be on the alert for deflation. There is so much debt in the world that it weighs heavy on all economies and countries. Thanks for sharing.

  2. our masters are manufacturing deflation by using printed money to move to the short side of all commodities. they are also using that printed money to bolster the balance sheets of supermarket monopolies whose discount wars are nonsensically generating record profits and destroying the profitability of suppliers. they are also mobilizing printed money to inflate the currencies of economies with resources to promulgate bubbles within those economies. finally they use interest rates to tax those economies with a real wealth base of commodities

  3. In a world of negative real interest rates, super-luminal information transfers from the Federal Reserve to distant computers, and ever-increasing P/Es, why should we concern ourselves with dowdy old concepts like deflation. It's all good even when it's bad! MMT will take care of all the piddly details on this ride to Utopia.

    1. It might be instructive to visit the output of A. Gary Shilling, who's been highlighting the impetus toward for deflation. It's the most likely reason that Bernanke's pedal-to-the-metal money printing hasn't caused hyper inflation: With deflation in the works, too much currency only postpones the natural order of things for a time.

  4. Thanks. While we have to be clear on the difference between monetary contraction and price deflation, I think under the circumstances this speaks well to the insanity of "economists" beating the drum of inflationary concerns.

    1. Indeed. While the Fed may be effectively printing money like hey-go-mad, precious little of that is making its way out of the Wall Street economy and into the Main Street economy. It's only keeping the velocity of money going just barely fast enough to keep the whole show from going *kerplooey*.

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