Why the Prospect for Deflation Looms Large

Deflation is rare. There's only been two major episodes in U.S. history: 1835-1843 and 1929-1933.

Plus, it's notable that the 2007-2009 financial crisis was the biggest credit crisis since the Great Depression of the early 1930s.

These crises did not appear out of the clear, blue sky.

As Robert Prechter's book, Conquer the Crash, notes:

Deflation requires a precondition: a major societal buildup in the extension of credit (and its flip side, the assumption of debt).

With that in mind, consider two news items. The first is from the Wall Street Journal (Aug. 13):

U.S. Mortgage Debt Hits Record, Eclipsing 2008 Peak

One factor could be homeowners tapping into home equity for cash when they refinance

The second is from the New York Post (Aug. 11):

More consumers nationwide are falling behind on their payments and filing for bankruptcy to resolve overwhelming debt loads....

And unmanageable debt is also forcing more companies to file for bankruptcy, triggering a wave of job cuts -- with nearly 43,000 job losses announced in the first seven months of this year, according to a new report by Challenger, Gray & Christmas....

Meanwhile, record American household debt, near $14 trillion including mortgages and student loans, is some $1 trillion higher than during the Great Recession of 2008. Credit card debt of $1 trillion also exceeds the 2008 peak.

Americans are spending heavily, again -- and often recklessly, say analysts.

"No question about the fact that credit quality is declining," said... a financial strategist at Odeon Capital Group in New York.

Prepare now for what Elliott Wave International analysts see ahead.

Read the free report: "What You Need to Know Now About Protecting Yourself from Deflation."