Why Financial Authorities Should Focus on Deflation -- Not Inflation

It's been nine years since the "Great Recession" ended in June 2009. Yet, even after this lengthy period of economic recovery, inflation is by no means raging.

Even so, many financial observers continue to anticipate inflation.

But, according to a May 15 Business Insider article, financial authorities may very well be anticipating the wrong thing. Here's an excerpt:

What if the entire world of money is preparing for the wrong disaster — which would be a disaster in and of itself?

Since the financial crisis, Wall Street, central-bank heads, economists, and policymakers have been waiting for the return of inflation. At the beginning of this year, they thought they had found it. It came, so they thought, in the form of a weak dollar, wage growth, economic stability in China, and steadily rising interest rates.

So here in the US, the Federal Reserve started talking about the importance of preparing to fight runaway inflation. In fact, it's obsessed with the idea. According to Deutsche Bank analyst Torsten Slok, the Federal Reserve is talking more about inflation now (in its minutes and in its reports) than it did in 2006 when the economy was actually overheating, right before the crash.

This, even though personal-consumption expenditures haven't grown by the Federal Reserve's 2% target since the financial crisis.

There's a lot of noise, from data revisions and Trump tweets, trade-war threats and hopes of growth from tax policy, a wobbling stock market, and rising interest rates. But when it comes down to it, the things that everyone is saying will be sources of inflation may not be sources at all.

Meanwhile, the weak dollar, wage growth, and a stable China elixir that got markets high in January have since faded. That should be a warning. If we play our cards wrong and pay attention to all the wrong signs, we may still be in a world tilting dangerously closer to our old enemy, deflation.

Indeed, as the trend in social mood shifts from positive to negative, the April 2018 Elliott Wave Theorist makes this prediction:

Deflation will rage around the globe.

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