DEFLATION SPREADING WORLDWIDE: Inflation Drops in U.S, Eurozone, India, Japan, And China Despite Interest Rate Cuts And QEs… Printing Money Can’t Beat this Deflationary Dilemma?!?!

U.S. wholesale prices fall sharply in April


U.S. wholesale prices sank in April for the second straight month as the cost of gasoline and vegetables fell sharply.

The producer-price index declined by a seasonally adjusted 0.7% to mark the biggest drop in more than three years, the Labor Department said Wednesday. Economists surveyed by MarketWatch had predicted a 0.7% decrease in April, following a 0.6% decline in March.

India: Inflation drops to 4.89% in April, lowest since November 2009

NEW DELHI: Declining price of food items, including fruits and vegetables, pulled down inflation to nearly a three-and-a-half-year low of 4.89% in April, which may present a case for further monetary policy easing.

Inflation based on the Wholesale Price Index (WPI) stood at 5.96% in March. In April, 2012, it was 7.50%.

This is the lowest level of inflation since November, 2009 when it was 4.78%.

As per official data released today, WPI inflation in the manufactured items category declined to 3.41% in April from 4.07% in March.

Investors Are Freaking Out About A Chinese Economic Hard-Landing Again

Chinese growth expectations also went negative for the first time in 14 months.


China inflation drops sharply in March

Food prices also dropped to 2.1% growth in March, relative to 6% inflation in the previous month. Food is an important gauge of cost of living expenses in China. It accounts for more than a third of the country’s inflation calculation, and for rural families, it makes up the bulk of expenses.

The Eurozone Enters Its Longest-Ever Slump: Germany GDP misses forecast, France slipped into its third recession, Italy and Spain both saw GDP drop 0.5%.

Bank of Japan stands firm while deflation worsens

The Bank of Japan said Friday it expects prices to rise as a result of its ambitious stimulus plan, even as a separate report showed deflation accelerated last month.

Japan’s consumer price index fell by 0.5% in March, the government said. Prices have now declined for five consecutive months, underscoring the monumental task facing GovernorHaruhiko Kuroda as he works to reverse 15 years of deflation.

Japan’s New Export: Deflation?

Lower yen means dearer currencies for Asian competitors, just as China slows. 1997 redux?

Eurozone inflation drops for third straight month

Inflation in the eurozone has fallen to 1.7 percent, comfortably within the European Central Bank’s target range of just below 2 percent. The drop reflects the currency union’s weak economy and high unemployment.

Inflation across the 17 countries that use the euro currency dropped slightly in March, keeping it in line with the European Central Bank’s target, the European Union statistics office said on Wednesday.


Gold And Silver Are In Liquidation Mode Again

It’s happening again. Gold and silver are lin liquidation mode.

Both of the two precious metals are back to being taken to the woodshed.

Gold looks at risk of breaking below $1400/oz. again.



And silver is just plain ugly.

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A Wave Of Surprise Interest Rate Cuts Just Hit Global Markets


Printing Money Can’t Beat this Deflationary Dilemma


Article Continues Below

There exists a universal complacency that the Federal Reserve Bank can save our economy from catching the spreading Asian contagion, thereby allowing us to avoid the severe problems of deflation. Economist after economist are telling viewers on CNBC that there can be no deflation as long as the Fed continues to cut rates, and expand the money supply. Multiple stock market strategists follow who say that the stock market should not decline further as long as interest rates are being cut.

In our opinion, reducing interest rates won’t save us from the deflationary problems that our global economy is now having.

The bull market in stocks is over because the credit bubble has burst. Lower short-term interest rates and an attempt to print money will not revive it. The easy money that fueled stock markets around the world has dried up, and the deflationary forces that accompany the bust side of the boom will swamp government monetary and fiscal policy until the excesses are wrung out of the economy.

History suggests that even dramatic drops in interest rates won’t soften the bust side of a credit boom. Take recent Japan, where interest rates fell from 7% to almost 0% over eight years and where the Japanese central bank has tried desperately to increase the money supply. Japanese stocks just hit a 12-year low, and the IMF expects the Japanese economy to shrink by 2.5% this year. Japan’s leaders say their economy stands on the verge of a “deflationary spiral.”

Economic jargon calls the inability of monetary policy to reinvigorate the economy “pushing on a string”. With the demise of inflation in the current global economy, this theoretical example is now all too real.

The 1930’s Experience

In the 1930s, the U.S. also discovered that central bankers were no match for a ruptured credit bubble. The roaring 1920’s were more similar to the current economic boom than any time period of the last one hundred years. There are certainly differences as well, but analyzing the aftermath of the 1929 Crash, which started a terrible deflationary bust in the 1930’s, is instructive in showing us that “printing money” is not a panacea. The 1930’s was the last time our country has experienced serious deflation. Most economists and Wall Street pundits believe that the Federal Reserve actually contributed to the economic collapse with tight monetary policy. In actuality, the Fed attempted to be extremely expansionary through 1932. After the stock market crash of 1929, the Fed cut the discount rate from 6% to 2% by the end of 1930. The discount rate dropped as low at 1.5% in 1931 as the Fed frantically bought government securities in an attempt to expand the money supply until 1933. But the problem was the “pushing on a string” phenomena. No matter how hard the Fed tried, by providing controlled reserves to the banks, it didn’t succeed in increasing the money supply. The money supply actually shrunk because banks were either unable or unwilling to increase their bank lending. Potential bank customers who were judged reasonable credit risks were unwilling to borrow because their earnings prospects were deteriorating, and they knew it was foolish to borrow and buy something today when the price would be lower next month. Therefore, this was a “demand” problem from potential creditworthy borrowers. Other entities that wanted loans were often deemed to be poor credit risks in an environment of spiraling credit defaults. The problem was exacerbated as individuals hoarded cash, causing monetary velocity to plummet.

Fiscal policy was also highly expansive, with government spending jumping 42% in 1931. But despite the attempts of the Fed and the Treasury to inflate, America’s depression and deflation only deepened. Famous economist Murray Rothbard said that President Hoover “acted quickly and decisively”, and put into effect “the greatest program of offense and defense” against deflation and depression ever attempted in America. He concluded that the “depression was instead prolonged by inflationist and other interventionary measures.”


USA TODAY: Deflation, not inflation, could bedevil markets

The yield on the bellwether 10-year Treasury note dipped to a 2013 low of 1.62% Wednesday as traders’ worries turned from inflation to falling prices. The latest economic reports shows wage pressures are less than half what the Federal Reserve says is acceptable.

The reports also show evidence of an economy weakening — a hiring pullback, a drop inconstruction spending and slowing manufacturing growth, among others. And there are signs that falling prices are a risk in Europe, where most eurozone economies are in a deep recession, and in China, where a sharp slowdown in manufacturing in April reignited fears about the economic outlook.



MORGAN STANLEY: And Now It’s Time To Worry About Deflation Again

While it’s well known that the Fed is far away on its employment target, it’s also now seeing its inflation target look increasingly perilous.

inflation target CPI pce

Morgan Stanley

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