Research & Commentary

Fighting Deflation with More Deflation Won’t Work

Watch this new interview with Pete Kendall, the co-editor of the Elliott Wave Financial Forecast to learn why he believes deflation is a global phenomena.

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[Editor’s note: A text version of the interview is below.]

Dana Weeks: Hi this is ElliottWaveTV and I’m Dana Weeks. I’m joined today by Pete Kendall, the editor of the monthly newsletter the Elliott Wave Financial Forecast. A lot of unintended consequences are likely to be associated with quantitative easing and negative interest rates and you commented recently on the rising sentiment for a ban on cash – Pete, why is this happening now?

Peter Kendall: At this point, quantitative easing is actually driving rates from zerp, which is zero interest rates, into negative territory. Many countries have negative interest rate policies.

As we noted in our latest issue [of the Elliott Wave Financial Forecast], let me read it to you, it’s from an economist at Harvard, he says: “What we want to do is take cash away or make the cost of hoarding high enough that central bankers would be free to drive rates as deep into negative territory as they needed.”

So basically they’re trying to fight deflation with more deflation and it won’t work. Why? Because of cash. By holding cash, people avoid the negative rates and that’s going to be key as we go forward.

Dana: This increased interest and attention on cash – how does this pertain to deflation?

Pete: Well in a deflation, cash is king. People want to hold cash because it gets more valuable over time versus inflation where it loses its value.

Dana: And Pete do you think that this sentiment is centered on any one country? Or is this a bourgeoning global phenomena?

Pete: Well actually you see it around the world and the leader is Japan. Deflation has been coming on and off in Japan for 20 years. What we noted in the latest issue is that there actually was a run on safes sometime last year. We also noted, in Germany you’re starting to see the same movement toward safes. That’s actually holding physical cash and that’s exactly what we’ve been talking about and that’s exactly what we think will arrive here in the U.S. ultimately.

Dana: Well thank you so much for all that great information, Pete.

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