Monday, October 12, 2015

Deflation = Debt + Demographics + Disruption

"With every passing day the Fed, which recently revealed that among its mandates are China, the VIX, the Dow Jones, and who knows what other market-driven indicator (a market which is also influenced by the Fed, leading to the mother of all reflexivity nightmares), is realizing the trap it has set for itself with 7 year of ZIRP and QE, two policies which on their own would have boosted much needed inflation (because a world drowning in $200 trillion in debt can only survive if the debt is inflated away, otherwise mass defaults are imminent), and yet has seen inflation expectations recently tumble to lows not seen since the financial crisis.
The reason for this pervasive global deflationary tide was explained by Bank of America in very simple terms, or rather letters, as follows: Deflation = Debt plus Disruption plus Demographics.
To wit: The cyclical fallout from the Great Financial Crisis and the secular deflationary “D’s” of excess Debt, tech Disruption, aging Demographics have been the major catalysts for deflation.
  • Disruption: Technological innovation and disruption are driving many goods & service sector prices lower (rent & health care are two important exceptions); extending human life and the propensity to save; fostering wage and job insecurity..."

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