...From Bob Chapman, International Forecaster [excerpt}
...Is it inflation or deflation? We just don’t know yet, but we do know Ford has cut contract labor wages 7% to cut losses. The auto industry is facing intense price pressure. Zero interest rates have destroyed profits and future sales all to keep sales up. This among other things has forced the PPI down to 1.6% in October, its biggest monthly drop on record. Industrial commodities are at their lowest levels in 15 years, which is certainly deflationary. We are a lot closer to deflation than people think. If we were to see $10.00 oil, that would push the world over the deflationary edge.
The question is will the massive influx of aggregates by the FED and the Treasury neutralize rising deflation. We could very well follow the Japanese model into depression.
Due to the absence of profits, companies with large fixed debt will find it difficult to meet service payments. Financial institutions are already getting burned on bad loans and except for AAA borrowers, they are not lending. This has been the case in Japan for years. As in Japan consumers save even though they are getting a negative return. As it becomes obvious saving is a lose-lose game they take the flight to gold. The syndrome leads to falling stock markets such as the Nikkei falling from 40,000 to 9,500 over the last 10 years and the Dow’s precipitous crashes in 1929 and 1932. In 2001 the PPI dropped from 3.8% to 1.6%. We expect a PPI of minus 1% in 2002. These figures are even worse than the 7% annual fall in prices between 1929-32. We presume figures during the 1930’s were not altered monthly or quarterly as they are today. Today it’s very hard to tell what the real numbers are. Over the past five years manufacturers have met competitive lower prices and profits through innovation, but this virtuous circle cannot continue. We have increasing unemployment, a slowing economy, overcapacity and excess inventory to contend with.
How will deflation look in today's economy?
My Suburban was low but quite happy now...
NeverGore