The Chance Of A Deflationary Recession Going Up

Many seem to live by the philosophy "inflation bad, deflation good".

For those who believe this to be the case, you might be cured of it shortly. It appears that we are heading into a major downward swoon brought on by deflation.

And this is not going to be something people like.

The idea that deflation is good is absurd. People seem to whine when prices go up yet, each day in cryptocurrency, we see "when moon". Why are people rooting for prices to increase?

Naturally, this only applies to asset prices.

Wait, don't people complain about the cost of housing? I guess people like when they have to bring a check to closing because the value of the property declined.

Do you see how insane this outlook is?

Of course, to top it off, I am sure all love to be called into the office and be told by the boss that the ole salary will be reduced by 5%.

This is all part of deflation.

So no Boo-Boo, deflation is not fun.

Deflationary Recession

When a recession is brought on by deflation, it is the worst. Even Ben Bernanke made note of this when he was chair of the Fed. Bad things happen when the economy is pushed south by deflationary forces.

For the last 18 months, I wrote about how deflation is the concern. All the while people were online whining about the CPI. This was foolishness, mirroring what the talking heads on television were parroting.

Even if the "inflation" indicators, the CPI is a trailing metric. At least people should look at the PPI, which leads the CPI.

By the way, did you see what those numbers look like out of Europe. This is ground zero for an economic implosion. The PPI for the month was down, making it 5 straight months of being negative. Even the core PPI was down .5% in the month of May, the lowest level since 2009.

This is not good. While prices going down is often viewed as a good thing, there is a reason why it ends up bad. It is a barometer on the economy. When supply chain shocks are resolved, which caused the rising prices to begin with, we are left with an economy that is very weak.

Of course, the fact we had an announcement of production cuts in oil tells us what we need to know. These countries that pump oil do not cut production when demand is strong.

We all know they are fighting to keep prices elevated, a battle they might not win.

Jobs Get Crushed

When there is not enough money in the economy, something I wrote about for the past couple years, there is no way for higher prices to be sustained. This means that elevation in that area is indeed transitory. The problem is people do not realize how all of this works. They expect a lower read by the next CPI report.

The march to deflation is not a straight line. It is full of bumps and turns. We saw the EU basically fall into recessions early in the year, only to get a bump when China reopened. That ship sailed though and things are progressing back down.

What is overlooked is that when companies have things tightening, their answer is to let workers go. Before that happens though, they tend to hand onto them but do things such as cut hours. This is what we are seeing in the US. Another sign of the path we are going down is the use of temp workers, or should I say, lack thereof. This is at 2008 levels.

Prices coming down are of little help when you lose your job. Another issue is when defaults start to take place. This sets off another chain of events that also brings about a spiral downward.

The only think missing is a currency crisis which might be brewing in China.

Keep in mind Japan's lost decade turned into 3. That is what a deflationary spiral looks like.

---

If you found this article informative, please give an upvote and rehive.

gif by @doze

logo by @st8z

• What is Hive

Posted Using LeoFinance Alpha