Look at These Harbingers of Deflation

In his third edition of Conquer the Crash, Robert Prechter noted several portents of deflation, which include high debt levels and stalled prices for physical goods. The book said:

The first time the Fed bought a slew of new assets (QE0) was in 2008, and commodities went straight down during the entire buying spree. QE1 was just a swapping of assets, not new buying, so it wasn’t inflationary; ironically, commodities rose during this time. Commodities rose a little bit after the inflationary QE2 started but ultimately went lower. Since QE3 and QE4–the two most aggressive programs of inflating the Fed has ever initiated–commodity prices have been trending lower as well.

Today, in late 2017, the CRB index of commodities is trading even lower than when the above commentary was published in 2014.

Relatedly, the November 2017 Elliott Wave Theorist showed this chart and said:

The chart shows that the annual rates of change in the PPI and CPI have been sporting lower peaks for decades. Now they are hovering just above zero.

This persistent slowing has occurred in the face of the Federal Reserve’s record base-money inflating during the period from 2008 to 2014. The Fed has expressed both puzzlement and concern over this slowdown, but there is nothing it can do to stop it. Social mood regulates the overall level of credit, and both social mood and credit outstanding are extremely elevated.

When social mood begins to trend negatively, available credit will contract and debt will implode as deflation takes hold. The Fed will be prompted to act, perhaps in dramatic ways; but its actions will not change the trend. The bear market will ultimately lead to an outright decline in the prices of producer and consumer goods.

Now is the time to learn more about deflation.

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