IMO, We are deflating now, just like during the 30s. I think this is observable if you tally up inflationary forces verse deflationary forces it makes a net contraction. The Fed, at this point, can only print money to inflate because normal channels are clogged up. Banks balance sheets will be impaired for years to come and the economy is not producing any new consumers which can take out debt to inflate. Deflation abounds.
I actually agree with Denninger on the degree.
I am quickly running out of possible scenarios to prevent a severe deflationary depression from taking place. By “severe” I mean 20%+ U3 unemployment, GDP contraction of at least 25%, and a possible loss of federal funding capacity leading to the immediate destruction of Medicare, Medicaid and Social Security, a 50% reduction of defense spending and near-complete-elimination of all other Federal Programs due to a “sudden stop” in the ability to fund Treasury issuance. Yes, it could get that bad, and it could happen a lot faster than you think.
Normally, this would be bullish for the USD. Though, if you follow the effects of that kind of deflation out to the national and international level i.e paying back national debts, perception of the dollar, printing to make up shortfalls, etc… What happens?
Then again, I don’t look at things from an investment standpoint anymore. More of a social cohesion and international conflict standpoint. If my precious metals or dollars dramatically reduce in value, I’m emotionally prepared
