“DEFLATION”, GET USED TO THIS WORD
NEWS BRIEF! Ben Bernanke will tell the world that the USA needs another stimulus.
Japan has had “Deflation” for over twenty years.
Prices are steadily dropping in Japan as that country struggles with a recession that will not go away.
Japan owes trillions of Yen to its own public and consequently will not default. But, since its workers are always saving the economy is not growing, but actually sliding downwards. In order to get rid of their inventory businesses lower their prices.
Below is an excerpt from the Wall Street Journal:
By TAKASHI NAKAMICHI And ELEANOR WARNOCK
TOKYO — “The International Monetary Fund said Japan’s government and its central bank must do more to combat deflation, but the lender also expressed sympathy for Tokyo’s controversial foreign-exchange interventions meant to limit the negative effects of a strong yen on the export-dependent economy.
In a report following its annual policy meeting with Japanese officials, the IMF said Tuesday that the Bank of Japan is capable of further measures, such as the purchase of longer-term government bonds as well as private-sector debt and equity, to meet its recently announced 1% inflation goal.
The fund also said “further easing of monetary policy would be advisable” if Japan’s economic outlook worsens sharply amid the European debt crisis and slowing global growth.”
The U.S.A. also has a strong currency and prices of imported goods are low.
Almost everything sold in the U.S.A. which is manufactured comes from China and the prices are inflated by the importers who realize that Americans will pay enormous prices for “Name Brand” goods such as Nike.
(The same shoe, made in the same factory will sell for $10.00 in Wal-Mart, while a Nike Brand shoe will sell for $100.00 in a specialty store.)
But, now even name brands are failing. Best Buy, a brand name specialist is losing so much money that the company is going into private hands.
THE PRICE OF OIL
The price of oil recently dropped below $80 a barrel. Oil is a world commodity. The supplies are running out. Yet, the Global Economy is stalling, stuttering and falling.
Because of over-population there is an over-production of manufactured goods, commodities and foods.
Prices are being forced to drop.
FISCAL STIMULUS
Central Bankers are fully aware of the global over-production.
However, they are caught between an enormous debt load built up over the last forty years and an inability to repay this debt.
They see their banks sliding into bankruptcy.
Their only hope is the debasement of their currency.
Such debasement or currency printing will ultimately result in inflation; but in the interim, Deflation will prevail.
For this reason, people should not buy major items such as cars and houses.
There will be a period when the prices stop falling and inflation returns.
Stay tuned! That will be the time to buy.
In the U.S., houses are in a similar state. Their prices drop every month and they will continue to drop for the next few years until inflation supervenes.
Here is a quote from David Zervos from The BusinessInsider…
“These downward trends in the energy and commodity complex should be a warning sign to anyone with a “price stability” mandate. There is a hefty disinflation trend developing and given the amount of debt in the system – and the weakness of global aggregate demand – any signs of significant disinflation should be cause for grave concern. We cannot mix a lot of debt with a lot of deflation – that will be the end of us!! That is Irving Fisher 101!
“And while it may not be “common wisdom” to assert that our global central banks are being too tight, the proof is in the prices. A large sustained drop in energy costs at this stage of the reflationary game is VERY unsettling. It is the surest sign that monetary policy is too tight!”
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