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So You Thought Deflation Was Dead?

ByRyan Jordan
Published 06/23/2013, 12:57 AM
Updated 07/09/2023, 06:31 AM

An appreciation for the power of deflation came back in the dark days of late 2008 and early 2009. In that environment, nearly everything not nailed down was sold off as the financial system began to implode. Nearly everything, that is, except for Treasuries of all duration and, to a lesser extent, gold (which although rocky, marched back to near 1000 dollars an ounce in March 2009 as the financial world at least appeared to be ending.)

Fast forward to this week, and not only did all asset classes go down, but even longer dated Treasuries and gold went down at the simple hint of any kind of tapering in the monetary realm. (Remember, anything other than and increase in monetary heroine is tightening right now– this is how dangerous and fragile things are in the financial system– you need to think like someone in rehab here.)

Bernanke et al think they have control of this tightening process, or that the real economy is strong enough to handle it (laugh out loud.) But I’m not so sure.

Still, I have to confess that we don’t know whether a few days makes a trend toward deflation. But if rates continue to rise, people may just eventually wake up and realize that stagflation, (instead of goldilocks on the one hand or deflation on the other) will likely be in our future. Maybe we are headed back toward the 1970s, to some extent. You should do some research regarding what the best performing assets during that decade were…

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