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Worldwide cyclical stagflation within a secular deflation – what does this mean for your future?
The world is experiencing something that is fooling every classical economists including the central bank authorities in the world. The world economy is treacherous and dangerous. The underlying risks are widening with little knowledge of common people and the top gun economists of the world.
Right mow all the central banks are focused on the commodity driven inflation scenario from demands in China and India. The oil, metals and grains have all gone up through the roof due to pockets of “perceived” shortages in the middle of large commodity and energy demand in China and India.
But no one is noticing that the Western nations pushed all the jobs to India and China to import India’s and China’s deflation and under employment. It is a huge secular deflationary environment. In America, Europe and Japan, deflation is fueled by excessive hassle of doing business and lack of entrepreneurial incentives. Japan has seen clear classical deflation. America and Europe have experienced severe hidden deflation. People in Europe and Japan have lost high paying jobs and have finally accepted “Burger Flipping” jobs to keep going in life. The savings rate in America is lowest ever. The world is experiencing unprecedented levels of borrowing from all – individuals, Governments and Corporations. The Real Estate prices have vaulted nut on care analysis we find what really went up is unprecedented level of “crazy borrowing without any regard to underwriting principles”.
In spite of commodity inflation, as the Federal Reserve in America and equivalent central banks in other countries have increased the short term interest rates, the long end of the bond market has not shown any sign of fear. In America the ten-year Treasury Note yield is still hovering around 4.5%. In other words, the debt markets have for the first time completely disregarded the inflation fear.
What is really happening is that the world economy is in a mode of deflation for a long time. Within that secular mode right sow we are experiencing something called a counter trend cyclical stagflation. Once the commodity markets cool off and the perception of energy shortages recedes, the world economy will show its teeth of deflation.
What it means for common people in the main street is that all must reduce the debt levels. Debt can make one reach in an expanding inflationary economy. That is what happened before. But now we are in the middle of a deflationary environment that will soon manifest severe prolonged contraction. In that environment the winner is the holder of cash and no debt.
BIZ/FINANCE ARTICLES
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