The deflation debate is crucial for investors. It should be obvious to anyone with a brain (and just a modicum of math skill) that there is a terrifying risk here. Made me think â if we had moderate controlled rents, security of tenancy, and little house price inflation, why would anyone taken on the burden of a house purchase? The majority opinion is deflation â¦ Date: April 10, 2020 Time (UTC): 5:22 pm As lower prices make it harder for businesses to pay back a record corporate debt bubble, deflation will trap the economy in a vicious cycle. That would result in debt deflation on a massive scale as people default and/or repay the debt if they can. That should terrify us. Published: April 28, 2020 at 9:45 a.m. Moreover, central banks continued to create huge amounts of money even after the crisis. Furthermore, they sell almost everything (real estate, stocks, bonds, everything they have) and put deflationary pressure on the economy. By Rick Ackerman Posted on April 5, 2020, 5:10 pm EDT Last Updated April 6, ... as my commentary tried to make clear, deflation â the opposite of a debt jubilee â will come before hyperinflation could effectively let borrowers off the hook. Before taking any actions please do your own research and consult with registered professionals. Do you know that deflation creates the best investment opportunities? RA . It has no influence on the product price you pay but helps us to maintain this website free and provide the highest quality educational material for you. It is extremely problematic for individuals or companies who have debt. For a technical recession, GDP in two consecutive quarters must be negative. It means that we get small commissions if you end up buying products through our links. All rights reserved. A few reasons why deflation might be ahead: Unemployment in the U.S. is the highest since the Great Depression (14.7%). In other words, as Robert Prechterâs 2020 edition of Conquer the Crash, notes: When the volume of money and credit falls relative to the volume of goods available, the relative value of each unit of money rises, making prices of goods generally fall. With deflation, debt gets more expensive over time, taking a bigger and bigger bite out of your real income. All shopping malls, restaurants, bars, and so on are closed. Thousands of businesses will go bankrupt and people will lose their jobs soon. With deflation usually comes recession in the economy. Beans in the teens? ... Itâs hard to think of a world leader dreading 2020 more than Japanâs Shinzo Abe. For instance, the Delta of an option is the sensitivity of how the option price moves in relation to a change in the underlying instrument, and Theta is the relationship between the option's price and the passage of time. Unfortunately, because of the COVID-19 in the world, people must stay quarantined at home. We still require extreme recession or depression in order to restart our economy for the next healthy economic boom. Look at the title below. Below I collected 4 main reasons that prove that currently (2020) we are in a deflation around the world, especially in the western world. I thought of interest rate sensitivity when reading the latest report from the Federal Reserve Bank of New York, which shows that household debt in the U.S. surged last year at the fastest pace since just before the financial crisis of 2008-2009. I highly recommend you to watch this video. You might think that demographics have no connection here, but believe me, it has a huge influence. In fact, that blue line which represents money supply shows that the US, in about 7-8 years, multiplied their currency supply by 5 times. This fast reduction in consumption is the main reason for short but extreme deflation in 2020. Some of the newly created currency is held at central banks as a reserve currency and slowly leaks into circulation over time. And in Greece, maybe 10% of the population had to emigrate and neoliberal countries like Latvia over 25% â¦ The first one peaked in two stages in the 1930âs and 1940âs, and the second one peaked in two stages (so far) in the late 2000âs during the 2008-2014 period and again into the 2020âs. The downward trend of all these cycles is always deflationary for the economy. The company. Bank assets fall because of the defaults and because the value of their collateral falls, leading to a surge in bank insolvencies, a reduction in lending and by extension, a reduction in spending. In fact, all 7 show coming deflation in the economy. Money created by the central bank in the US is shown with a blue line in the graph below. Investing comes always with risks and it must be properly understood. Debt Deflation: A situation in which the collateral used to secure a loan (or another form of debt) decreases in value. You will find why hyperinflation, GoldSilberShop sells, stores and buys gold, silver, platinum, palladium and even diamonds in Germany. By the way, Switzerland multiplied it by 12 times in the same period of time. Wealth distribution varies over time and currently, a very small number of individuals in the world control more wealth than 90% of the rest. Debt deflation is a big problem. It is opposite to inflation where the prices of everything constantly increase. Moreover, 4 reasons are given that prove that we are already in deflation for more than 10 years in western economies. They do not consume many things they normally would. Deflation in our economy is unavoidable. Debt deflation is a theory that recessions and depressions are due to the overall level of debt rising in real value because of deflation, causing people to default on their consumer loans and mortgages. Most of the world is quarantined at the moment. Japan has been fighting debt deflation since 1991. Last 2008 financial crisis, the middle class is doing very poorly these times demographic shows. Hits an all-time high as it costs next-to-nothing to service the debt of households is extremely for. System lasted for around 30-40 years, but believe me, it is opposite to inflation where the of... Are given that prove that we are already in deflation, the stock market society... Below shows the average age of each countries population and auto-loans sustain it later it hard! That this won ’ t drop to the annual net income earned by the per... Spend less, thus the prices of everything constantly increase usually, deflation starts because of their,... 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