Welcome to a World of Deflation

Here’s a chart to illustrate what happens during deflationary economic pressures, as we’re seeing right now (click to see a larger image):

In order from top to bottom: Long-term Treasury Bonds (orange), US dollar (black), Emerging Markets (brown), Euro (Green), Yen (blue), Energy/oil (purple) – last 9 months

Too much debt, not enough demand (poor demographic structures in nearly all Western nations), governments raising taxes to maintain the current status quo (idiotic…), and potentially the largest carry-trade (US dollar) in the history of the world with Emerging Market debt up approximately 50% since 2009!  Yeah, the US dollar will continue to rise…  It also appears that longer-term US interest rates (10+ years) are heading lower, and if Japan and Europe are any indication, they’re heading much lower.

In my opinion, this doesn’t bode well for a bounce back in the price of oil anytime soon, which is great for consumers but not so great for energy companies, job growth in the US, or Central Banks that want to see higher inflation.

-Nick

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