Deflation!

DeflationBank of England interest prices have been kept at .five% for the 83rd month, the longest ever period of the lowest price in British history. But what if prices had been to fall additional? What if interest prices in the UK, have to fall additional.

Once more, I must emphasize that if you think interest prices are going to rise (due to perceived default danger) then you ought to explain how that will come about. In a nation with no central bank, confident it can take place. But how does it happen for US or Japan? The central bank can get rid of the default risk by purchasing the defaulted bond. So how do prices rise? The only way rates rise is by way of inflation, and the only way we get that is if there is a true growth opportunity from which to make new funds and credit.

As far as oil, I agree with BP’s CEO Bob Dudley, the slump in worldwide oil rates could hit bottom in early 2016 but prices are most likely to remain low for the next couple of years. I personally see oil prices heading to the mid to low 20s in the very first half of the year and they will remain low for a quite long time, especially if global deflation sets in (retain shorting oil futures and the CAD on any pop!).

The Good Depression was the most financially attempting time in American history. For the duration of this dark era in history, unemployment spiked, the stock industry crashed, and customers lost much of their savings. Also, employees in higher production industries such as farming and mining were producing a wonderful quantity, but not finding paid accordingly. As a outcome, they had less cash to devote and were unable to afford fundamental commodities, even in spite of how a lot vendors have been forced to minimize prices.

Note the pattern in the above monthly chart of the S&P 500. A reasonably minor market place slump in 1994 was treated by the then Greenspan Fed with an astonishing burst of new dollars creation – through its ‘sweeps” system response, which efficiently eliminated reserve needs for banksThat misguided policy designed the 1st so-referred to as Tech Bubble, which burst in 2000.