Courtesy of the FN: Nobody seems to care, but it really is all about deflation. Deflation first, inflation later. That is how this mess will play out. There is no other way, despite Ben "Helicopter" Bernanke’s best efforts to inspire inflation and skip the whole deflation part. The Master Plan really is to inflate, but the math simply doesn’t add up.
What kind of "urgent action" can be taken to "reduce high levels of excess capacity"? No amount of additional debt will put that idle capacity to work. Other than taking dynamite to idle factories, the only other "effective" measure would be to start a war. Wars have the added benefit of putting the unemployed to work even as infrastructure is blown up.
World Bank warns of deflation spiral: "The World Bank has given warning that global economy will fall into a "deflationary spiral" unless urgent action is taken to reduce high levels of excess capacity in industry.
Justin Lin, the bank’s chief economist, said factories running idle around world threaten to trap economies in a vicious cycle, risking further spasms of financial stress, requiring yet more rescue packages.
"Significant excess capacity has been built up and unless this issue is addressed, we will face a deflationary spiral and the crisis will become protracted," he told an audience in Cape Town.
Mr Lin said capacity use had fallen to 72pc in Germany, 69pc in the US, 65pc in Japan, and as low as 50pc in some developing countries, mostly touching lows not seen in modern times.
The traditional cure for countries caught in slumps is to claw their way back to health through devaluation, but this cannot be done today because the crisis is global. "No country can count on currency depreciation and exports as a way out of recession. Unless we deal with excess capacity, it will wreak havoc on all countries. There is urgent need for global, co-ordinated fiscal stimulus," he said.
Investments should be focused on infrastructure in poor countries that are bearing the brunt of the crisis. The downturn is already likely to trap over 50m more people in extreme poverty this year.
Mr Lin said some $30 trillion has been wiped off global stock markets and a further $4 trillion off US house prices, creating powerful deflationary headwinds. While emergency
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
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