There's no doubt that many people think, "Well, why wouldn't you?!" A few reasons why deflation might be ahead: Unemployment in the U.S. is the highest since the Great Depression (14.7%). Disclosure: We believe in transparency on the internet. 2. It means that we get small commissions if you end up buying products through our links. They save every penny and do not consume much. Look at the picture below. Deflation in our economy is unavoidable. Many countries around the world abandon the current dollar standard and try to trade bypassing dollars. However, he found that capitalism is the superior system and works very well, but it would always have boom and bust cycles. However, unintended errors may occur. Japan has been fighting debt deflation since 1991. PlutoniumKun April 25, 2020 at 11:40 am. RA . Such a situation makes the population angry, socialism and populist ideas come to society. With interest rates at multi-generational lows, it costs next-to-nothing to service the debt. Debt deflation is a theory that recessions and depressions are due to the overall level of debt rising in real value because of deflation, causing people to default on their consumer loans and mortgages. This is also deflationary for the west because some investors will invest in eastern countries instead of western countries. While demographics put strong deflationary pressure on the economy, this deflation caused by demographics happens quite slow compared with the deflation caused by the current reduction in consumption around the globe because of coronavirus. Featuring Richard Koo & Ed Harrison . This post explains, COVID-19 damages our economy and society. This is what caused the debt deflation of the Great Depression, which Japan has been fighting since 1991. In some cases, households take credit with great credit conditions (at that time) to buy a house or a flat that is extremely expensive (overpriced). The only way is to understand them and use them for your advance. Because of their selling, various assets slowly drop in price. Moreover, 4 reasons are given that prove that we are already in deflation for more than 10 years in western economies. For instance, the Delta of an option is the sensitivity of how the option price moves in relation to a change in the underlying instrument, and Theta is the relationship between the option's price and the passage of time. This reduction in consumption will change the way how many businesses work around the world. British Supermarket Chain Cuts Prices âAcross 400 Staple Productsâ, A View on How the U.S. Can Prevent a âJapanese-Style Deflation". ... That makes debt deflation likely, increasing the risk of insolvency. Hurrah!! 7 cycles presented below prove, that we go into deflation. For example a mobile phone, TV or car. This number has 12 zeros. A similar situation could be developing now in the U.S. Debt has inflated over the past few decades. It shows how the prosperity swings throughout the world, from Asia, through Europe to North America and back, over time. Highly recommended podcast â especially liked the comments on property and debt. The Massive Debt Deflation Risk Murray Gunn â¢ February 18, 2020. | Source: corlaffra/Shutterstock.com. In fact, all 7 show coming deflation in the economy. Look at the title below. Do you know that deflation creates the best investment opportunities? I thought of interest rate sensitivity when reading the latest report from the Federal Reserve Bank of New York, which shows that household debt in the U.S. surged last year at the fastest pace since just before the financial crisis of 2008-2009. A huge number of positive customer, GoldBroker is a gold and silver dealer and stores all your gold or silver solely under your name. Debt Inflation Explodes. Bank assets fall because of the defaults and because the value of their collateral falls, leading to a surge in bank insolvencies, a reduction in lending and by extension, a reduction in spending. Deflation remains the bigger danger from the collapse in global demand, rather than a surge in inflation. Infrastructural investment is a smart option in the US, because there has been decades of severe underinvestment, so if done correctly, it should raise productivity within the economy. That was accompanied by the beginning of private sector debt deflation, which stretched for a couple of decades, as the Global Market Perspective points out. Moreover, 4 reasons are given that prove that we are already in deflation for more than 10 years in western economies. Currently, we have extremely reduced consumption around the world and central banks try to pump trillions into the system to prevent the economy from falling into deep deflation and at the same time into the recession. Furthermore, at the same time, they reduced interest rates (red line) to almost 0% and kept them low for more than 5 years. Usually, deflation starts because of reduced consumption or contraction in the money supply. This picture is taken from the video series “Hidden Secrets of Money” created by Michael Maloney, where he explains these cycles in detail. Copy Japan. U.S. consumer debt hits an all-time high as it costs even less to service it. As it was explained before, currency creation is the only method to avoid deflation when consumption decreases. With each financial crisis, the stock market is going down and visits extremely lows. It has no influence on the product price you pay but helps us to maintain this website free and provide the highest quality educational material for you. Pay off debt. A past performance of various assets does not necessarily predict future results. That would result in debt deflation on a massive scale as people default and/or repay the debt if they can. Learn what is deflation, how bad is it and how to get rid of it. In normal times, this â¦ This is totally crazy! Date: April 10, 2020 Time (UTC): 5:22 pm As lower prices make it harder for businesses to pay back a record corporate debt bubble, deflation will trap the economy in a vicious cycle. The outbreak of COVID-19 pushes the whole globe deeper into deflation and trillions will be printed to fight it. However, with the 2000 dot.com bubble, the P/E ratio didn’t drop to the lowest levels as it always did. ... April 14, 2020 at 7:39 pm Sound of the Suburbs October 5, 2020 at 10:40 am. But it is extremely painful when it happens. Cue Monetary Deflation. This fast reduction in consumption is the main reason for short but extreme deflation in 2020. There is only one long-term call in the market now: will there be inflation or deflation in the post-Covid-19 world? © 2020 Investing-ABC. One of the lesser-known Greeks is Rho, which measures the change in an option's price in relation to changes in the interest rate. The owners of this website may be paid to recommend some companies. For example, people 55-65 years old start to save a lot because they understand that they will have to retire soon. Some cycles are shorter while others take hundreds of years. Nowadays, in most western countries exists a huge number of old people compared with young people that create products, services and pay taxes. Very mild inflation (up to 2%) is not bad for the economy and we lived in it for the last 12 years. At 25.30 mins you can see the super imposed private debt-to-GDP ratios. A reader writes to observe that the concept of debt deflation is gradually leaking out into the mainstream discourse: ... Azure Amaranthine May 15, 2020 7:24 PM "Debt exists first, then money which is why printing money is deflationary." Eurozone slides further into a debt-deflation trap, risking a protracted economic depression in the south and slow-motion insolvency crisis Ambrose Evans-Pritchard 2 October 2020 â¦ This is basically exactly what helped the 2008 financial crisis in the US to happen. Rates and bond yields structurally collapsed there in the 1990s, but that was also accompanied by the beginning of private sector debt deflation, a trend that existed for a couple of decades thereafter. Over-reaction to 2008 financial crisis. Please never invest any money if you cannot afford to lose it. All investment and financial opinions and suggestions expressed on the website are from personal research and experience of the authors. How can you achieve Japanification? Around every 30-40 years, the monetary system is slightly adjusted or changed in the world. The first one peaked in two stages in the 1930âs and 1940âs, and the second one peaked in two stages (so far) in the late 2000âs during the 2008-2014 period and again into the 2020âs. While spring, summer and autumn provide economic growth, winter is an economic slowdown and is always deflationary. ... Itâs hard to think of a world leader dreading 2020 more than Japanâs Shinzo Abe. So, it wouldn't be surprising if a similar development unfolded in the U.S. Also, keep in mind what the 2020 edition of Robert Prechter's Conquer the Crash noted: Yup, by 12 times. That is why it is trying to artificially suppress short-term interest rates through its money market operations. Todayâs debt bubble, as a percentage of GDP, is far greater than the bubble whose deflation coincided with the Great Depression. Before taking any actions please do your own research and consult with registered professionals. Check the western world. Deflation is a decline in prices of almost everything – resources, food and services. I confirm that I have read Countries lose confidence in the US and the US dollar itself. Posted on October 5 2020. When individuals reach around 65 years old, they start to consume less and must be taken care of by social securities. It is extremely problematic for individuals or companies who have debt. Recession is the worst economic period because people must produce more than they consume and it is painful. Price / Earning is the measure of the share price relative to the annual net income earned by the firm per share. The majority opinion is deflation â¦ That should terrify us. WARNING: Information on this Website and the resources available for download is for general information purposes ONLY and is not intended to provide any legal, investment, financial, tax, or any other type of professional advice or recommendation. It is opposite to inflation where the prices of everything constantly increase. Debt deflation. Furthermore, this is not the final value… Other countries around the world do the same. The debt-to-GDP ratio is down from its peak in 2009, much as it receded slightly in the late 1920s when a financial boom temporarily juiced the economy. In options markets, the "Greeks" refer to various measurements of how valuations move. Everything points to it. Below I collected 4 main reasons that prove that currently (2020) we are in a deflation around the world, especially in the western world. Debt deflation is a theory that recessions and depressions are due to the overall level of debt rising in real value because of deflation, causing people to default on their consumer loans and mortgages. We still require extreme recession or depression in order to restart our economy for the next healthy economic boom. P.S. Because of various surveys and science of demographics, it is possible, for example, to see that people spend the most when they are 45-55 years old. Money IS debt. Debt Deflation: A situation in which the collateral used to secure a loan (or another form of debt) decreases in value. ET By. Total U.S. household debt now exceeds $14,000,000,000,000 (14 trillion dollars). Now some new monetary system should come. Countries around the world had to print money because the economy was already going to deflation after the 2008 financial crisis. While I will not cover all the history in detail, but in the last century, we experienced multiple monetary systems. One key impact is that deflation means prices will be cheaper tomorrow, and so it pays to wait before buying if one can. It indicates, that the last 2008 financial crisis was not deep enough. When they earn less, they spend less, thus the prices of goods and services decrease even further. If everyone (both rich and poor) becomes poor at the same time, then the economic cycle can restart. Deflation, Hyperinflation and How To Profit from Current Economic Situation, Day Trading – Tool to get Familiar with the Stock Market, Trade Ideas stock scanner Review 2020 – Automatic trading with AI, JFD Review 2019 – Great Broker To Start Trading With, eToro Review 2019 – Most Important Details Inside, Why To Invest In Gold And Silver? Money created by the central bank in the US is shown with a blue line in the graph below.