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Deflation emerging – slow but sure! Why?

August 31, 2014

Much of the Euro-zone is now in deflation and/or a serious slow down. Italy, Portugal, Spain, Greece are now experiencing deflation with Germany, Britain, Sweden, and France slowing down as demand wanes. The entire European community of 28 states is now experiencing a drop in consumer demand and this means more deflation ahead. We witness some growth in the USA but this growth is ephemeral and may soon wane. Here in Tucson, Arizona, real estate building is strong but the demand for all the housing being built has not materialized.

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Historical ‘inflation’ is now giving way to realtime ‘deflation’. This trend is unlikely to change going forward! Watch for more signs of a slow-down with more deflation ahead!

I personally drive into many subdivisions in the Tucson area and find substantial building of new homes and apartments. Yet I also notice that most of these new developments are mostly vacant. Builders are building on speculation…hoping that consumers will demand their new product. What is happening, however, is a glut of new homes and apartments are coming on the market with very weak demand. Some developments have over 80% vacant units (few buyers at current prices). How can this be viewed as a healthy economy going forward? At some point prices must decline further if all these new developments are to sell out. We need more deflation for this new glut of houses to be absorbed.

Greece, Italy, Spain, Sweden, Portugal, now in deflation. The trend is likely to continue for most Western countries going forward. 

If other American cities are similar to the greater Tucson area (which is very likely), then we have a serious problem getting all these new units absorbed into the market. Prices will need to decline further and financing will need to remain favorable if this glut of properties are to be absorbed. The last couple of years, I have witnessed a strong demand from cash buyers (mostly corporate buyers) who bought up homes and apartments in the Tucson and Phoenix areas. This corporate demand fueled an increase in prices and values for 2011-2014. Cash buyers are now disappearing as home values are now starting to decline again. What does this portend for the future?

More evidence that ‘inflation’ is not our enemy going forward!

Real estate is likely to start another deflationary cycle in 2015 and this cycle could create the next serious recession/depression. Consumer income has not increased in the past few years and this means less demand and more vacancies. All the past QE helped the asset markets inflate somewhat but now with QE waning and soon being eliminated, we could witness the next serious recession/depression around the corner. Will our Fed attempt to reverse direction and start another QE program later this year? Personally, I don’t think so! This means that we will soon experience a serious slow-down in our economy along with the European economy (which is currently in serious trouble). Watch the stock and bond markets for signs that another downward cycle has started.

When I look at the geo-political situation globally, I also realize that all global markets are now getting stretched. Consumer demand appears to be slowing globally as well as in Europe and America. China is slowing. Russia is slowing. The Middle East countries are in a near-death spiral. The Asian tigers are slowing. Africa is slowing and Latin America is slowing. It appears, to me, that we are very near another downward business cycle. All the proposed QE for the European countries can not solve the DEMAND issue. Consumers make up most demand in all countries and with wages and income being stretched, I don’t envision any solution to this demand issue.

Central Bankers have a real ‘fear’ of Deflation as it reveals that their economic model is flawed! Every Central Banker will likely attempt to avoid any serious deflation going forward! But can these Centralized policymakers overcome the trend of the markets? 

Some pundits are now recommending that our Central Banks initiate QE for the public. Some are saying that consumers need new spending power and that this spending power needs to come from QE (free digital cash) for all working taxpayers. Just send every taxpayer a direct digital deposit so they can use these funds to support the economy with new spending. This idea is feasible as all our so-called money today is mostly cyber money. Digital units can be created by our Fed (in whatever amounts desired) and then a direct transfer (a digital deposit) can be initiated by the Fed to each taxpayers banking account. This would be similar to what the Treasury is now doing for Social Security recipients. A direct deposit from computer to computer.

Our Treasury (via our Fed) could initiate a QE policy for the public. This could be accomplished via a direct deposit from the Fed’s computer to each taxpayers computer account! Would this type of counterfeiting work? 

Ben Bernanke started this concept of QE for his select elite clients (the TBTF banks and primary dealers) in 2009. This concept of counterfeiting worked (to a degree) for the past 5 years. Will this concept be expanded so that all taxpayer consumers receive some new QE dollars? Why not? The entire financial system is now mostly within cyberspace and our digital dollar is created merely by typing new numbers into the computer screen. Why not create a few additional $trillion and use these units for a direct deposit for taxpaying consumers? The idea is unsound but so what! All monetary policy is now unsound and fraudulent anyway. So why not temporarily help the common taxpayer who needs funds for new spending? This idea is now in the open for our Fed to consider!

A direct deposit of counterfeit QE dollars could stall deflation for a short period! Our Fed (via our Treasury Department) could set up this policy so that every American taxpayer receives (say $10,000 via a direct deposit) from a QE policy to induce more inflation into our economy!

The coming deflationary trend started back in 2009 and was temporarily stalled while $trillions of new counterfeit QE dollars were created for our markets. This trend appears to be over in Europe and in America for the time being. So expect more DEFLATION going forward. Some 70% of demand derives from consumers and this demand has now been stretched to an extreme. Unless the Central Banks start a QE policy for the public, I don’t think the markets can do more than decline going forward. All the global markets are now stretched beyond a reasonable range. Get ready for some serious DEFLATION going forward, probably starting in Europe, then China, then Russia, and eventually America in 2015. Enjoy! I am: https://kingdomecon.wordpress.com

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