DEFLATION!!
by ilene - July 23rd, 2010 8:53 pm
DEFLATION!!
Courtesy of The Pragmatic Capitalist
Wow! We see the word “Deflation” everywhere; we see it in every financial publication and hear it every time we turn on financial TV. We see that the pundits who were bearish because of runaway inflation have just recently included deflation as well as inflation to be the problem. We were talking and warning about the ramifications of deflation as far back as the late 1990s. That was when we authored the “Cycle of Deflation” (see 1st chart). Whenever we used the word deflation back then, and through 2001, Microsoft Word did not recognize the word and then spell check would constantly try to get us to replace this unusual word with inflation or some other word that started with “de…. .”
You may wonder why we would bring up the fact that we were so early in deflationary warnings which are really only just now becoming recognized as a threat. At that time, we believed that the deflation about which we were warning during the biggest financial mania of all times would have taken place when the bear market started in 2000 and the recession hit in 2001. However, the Fed decided to make sure deflation did not take place by lowering fed funds from 6 ¼ % to 1% and, then kept it there for a year. Remember, 2002 was when Bernanke gave the helicopter speech where he implied that he would do whatever it took to control deflation-”even drop money out of helicopters.” Well, what they did was exacerbate a housing bubble that was already in force and started a second financial mania with stocks following the housing market into the stratosphere.
We wish Greenspan and Bernanke would have let the tremendous overleveraging (even at that time) unwind with the recession and, even though it would have been very painful, let the public repair their balance 
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THE CYCLE OF DEFLATION
by ilene - February 26th, 2010 10:47 pm
THE CYCLE OF DEFLATION
Courtesy of The Pragmatic Capitalist
By Comstock Partners:
We have been strong believers in the deflation theme since we have been writing these reports beginning in early 2000 (and even before). We are attaching a chart depicting the “Cycle of Deflation” which you should print out and refer to as you read this comment.
As you can see by the chart, the typical deflation starts with savings and investment which produces strong sustainable growth in the economy. However, when “greed” gets added into the equation, things sometimes change into non-sustainable growth. This is what happened in the late 1900’s when the dot com bubble mania convinced every man woman and adult child to believe that they were all supposed to be multi millionaires. They became so jealous of their neighbors who boasted about all the money they made in the market, that they also jumped into the market by buying such things as Internet Capital Group, CMGI, Iomega, JDS Uniphase, and many others of the same ilk which are now worthless.
The unraveling started taking place in 2000 and it looked to us like the American public came to their senses. We expected to have a significant recession where Americans could rebuild their balance sheets as the cycle of deflation took hold. But, instead the Fed lowered interest rates to 1% and kept them there for a year causing the public to again become jealous of their neighbors making thousands and millions of dollars on their homes. And also, believe it or not, the housing bubble brought about another bubble in the stock market. We couldn’t believe our eyes!!!
After the housing bubble burst, the stock market also collapsed causing a financial crisis “heard ’round the world”. Then, we were sure the markets and economy would fall to levels that would repair balance sheets of the household sector and allow the economy to get back to the tried and true savings and productive investment that built this great country. …
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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...
Ilene is editor and affiliate program
coordinator for PSW. She manages the site
