Research & Commentary

The “Death Spiral” of Deflation in These 4 Nations

“Currency crises sweep in.”

“Currency crises” are unfolding in four nations, with at least three more waiting in the wings. If history is any guide, this serves as warning to the world at large. Learn why …

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[Editor’s note: The text version of this video is below.]

Almost everyone is familiar with the early 1930s images of the Great Depression and bread lines that it brought with it.

What most people don’t know is that the Great Depression was not only a crisis of the stock market, which is how it’s usually seen, but also a currency crisis. As the stock market crashed, the values of currencies around the world got cut drastically, too.

In his book, The European Economy 1914-2000, historian Derek Aldcroft explains what happened in the early 1930s:

Industrialized countries in Europe felt the impact [of devaluation] directly from America, and indirectly via the periphery, as demand for industrial imports declined, and in turn declining demand for raw materials and foodstuffs on the part of the industrial powers fed back to the periphery. Once started therefore the deflationary process became cumulative. [emphasis added]

Elliott Wave International’s Chief Market Analyst, Steve Hochberg and his colleague, Pete Kendall, referenced this then currency war in the March 2013 issue of the monthly publication, the Elliott Wave Financial Forecast:

Another clear parallel to … 1929 is a sudden, global drive toward currency devaluation.

That “drive” is still evident, as these news items appeared earlier this year.

This one is from Bloomberg on April 4:

Venezuela’s Currency Is Doing Even Worse Than Previously Thought

On June 24, the Tribune News Service said:

Venezuela’s currency has become virtually worthless

But the “currency crises” hasn’t stopped with Venezuela. Here’s a chart and commentary from the September Elliott Wave Financial Forecast:

Venezuela is not alone. The chart shows that the prices of the Argentine peso, Turkish lira and Brazilian real are also cratering. … This is a warning of the oncoming deflation. Stories about the destabilizing effects of currency losses are also bubbling up in Pakistan, South Africa and Iran.

On a related note, in an article at Emerging-Europe.com titled “Is Poland the Next Turkey,”, Elliott Wave International analyst Murray Gunn notes that “developing geo-political” issues generally follow crashing currencies. He cites the “price action in the Polish zloty” as a prime example.

I’ll leave you with another Elliott Wave Financial Forecast quote:

Many regard these developments as peripheral. … But the rapid spread of these devaluations argues against such cavalier dismissals.

Get more insights in our free report, “What You Need to Know Now About Protecting Yourself from Deflation.”

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