Would you say that we have definitely entered an era of stagflation now? And what - given the set of circumstances we have today - would it take to tip us into deflation?
Oil is seen by many as a bellwether good--as its demand goes so goes the larger economy. Like all such truisms that is more than a little oversimplified, but given the centrality of energy production to the modern technologically driven economy it is not without a certain substance.
Yet despite significant production cuts not only by Russia but also by the rest of the OPEC+ cartel, the price of oil now is lower than when the broader OPEC+ cuts were announced, and even lower than just before Russia invaded Ukraine.
The production cuts have failed to even arrest the price decline. The OPEC+ countries are either a) producing less and accepting even less money or b) not adhering to their own production quotas, and thus destroying their own pricing power. Either way, if the goal of the cuts was to protect oil prices and preserve the cartel's market making influence, they backfired spectacularly.
The longer the decline continues without resurgent economic activity to add upward price pressures, the greater the degree to which the global economy is seeing not disinflation (a moderation of upward price pressures) but outright deflation (collapse of upward price pressures and falling prices in absolute terms).
Oil markets are already seeing deflation, and even gasoline prices are down from what they were--which is deflation by definition.
Will that extend to other goods as well? Eventually it must, if the declines persist long enough without countervailing price pressures to arrest the decline.
Yes, I’ve read your previous very well reasoned posts; I wanted to see if you had modified in any way your opinion on officially calling it stagflation. I agree - I’m certainly seeing clear signs of stagflation in my city. As for deflation, it sounds as though it will be a gradual descent, rather than a sharp drop. But maybe a particular geopolitical event will cause a sharp changeover to deflation. I don’t know. I can’t think of any substantial length of time since the 1930s when America had deflation.
And by the way, I know that Japan sank into deflation a few decades ago, but I haven’t kept up on what has transpired there since. Once an economy has become trapped in a deflationary pattern it’s very hard to get out of it, so Japan stayed mired in it until we all moved on with other interests. If you ever want to do a column on what measures were tried - and failed- I’d sure be interested in reading it. It sounds as though there could be valuable lessons we will need to learn...
I'd say we've been in stagflation for over a year.
Whether deflation expands across the global economy slowly or quickly will be determined by when and if the markets experience a "Minsky Moment" as I discussed previously. Certainly the stage is set for that Minsky Moment, when all of Wall Street's speculation sins come back to haunt all of us.
If there is a Minsky Moment then we will see a sharp turn to extreme deflation.
If there is not a Minsky Moment then we are more likely looking at a "lost decade" phenomenon, vis-a-vis Japan in the 1990s and early 2000s, and the US from the 2007-2009 Great Financial Crisis on through about the second year of the Trump Presidency (arguably we are seeing another "lost decade" form within the US economy at the present time).
Would you say that we have definitely entered an era of stagflation now? And what - given the set of circumstances we have today - would it take to tip us into deflation?
I've been saying that we have entered into a stagflationary era for the better part of a year.
https://newsletter.allfactsmatter.us/s/recession-matters?utm_source=substack&utm_medium=menu&sort=search&search=stagflation
What would tip us into deflation? Continued falling demand.
Which we are seeing if the extended downward trend in oil prices is any guide.
https://www.barchart.com/futures/quotes/CBN23/interactive-chart
https://www.barchart.com/futures/quotes/WIN23/interactive-chart
https://www.barchart.com/futures/quotes/CLN23/interactive-chart
Oil is seen by many as a bellwether good--as its demand goes so goes the larger economy. Like all such truisms that is more than a little oversimplified, but given the centrality of energy production to the modern technologically driven economy it is not without a certain substance.
Yet despite significant production cuts not only by Russia but also by the rest of the OPEC+ cartel, the price of oil now is lower than when the broader OPEC+ cuts were announced, and even lower than just before Russia invaded Ukraine.
https://newsletter.allfactsmatter.us/p/opec-oil-cuts-have-backfired
The production cuts have failed to even arrest the price decline. The OPEC+ countries are either a) producing less and accepting even less money or b) not adhering to their own production quotas, and thus destroying their own pricing power. Either way, if the goal of the cuts was to protect oil prices and preserve the cartel's market making influence, they backfired spectacularly.
The longer the decline continues without resurgent economic activity to add upward price pressures, the greater the degree to which the global economy is seeing not disinflation (a moderation of upward price pressures) but outright deflation (collapse of upward price pressures and falling prices in absolute terms).
Oil markets are already seeing deflation, and even gasoline prices are down from what they were--which is deflation by definition.
Will that extend to other goods as well? Eventually it must, if the declines persist long enough without countervailing price pressures to arrest the decline.
Yes, I’ve read your previous very well reasoned posts; I wanted to see if you had modified in any way your opinion on officially calling it stagflation. I agree - I’m certainly seeing clear signs of stagflation in my city. As for deflation, it sounds as though it will be a gradual descent, rather than a sharp drop. But maybe a particular geopolitical event will cause a sharp changeover to deflation. I don’t know. I can’t think of any substantial length of time since the 1930s when America had deflation.
And by the way, I know that Japan sank into deflation a few decades ago, but I haven’t kept up on what has transpired there since. Once an economy has become trapped in a deflationary pattern it’s very hard to get out of it, so Japan stayed mired in it until we all moved on with other interests. If you ever want to do a column on what measures were tried - and failed- I’d sure be interested in reading it. It sounds as though there could be valuable lessons we will need to learn...
There are some interesting takeaways from Japan's recent economic experiments.
I'll see what I can come up with--certainly there is a pressing need for some "lessons learned"! ;)
I'd say we've been in stagflation for over a year.
Whether deflation expands across the global economy slowly or quickly will be determined by when and if the markets experience a "Minsky Moment" as I discussed previously. Certainly the stage is set for that Minsky Moment, when all of Wall Street's speculation sins come back to haunt all of us.
If there is a Minsky Moment then we will see a sharp turn to extreme deflation.
If there is not a Minsky Moment then we are more likely looking at a "lost decade" phenomenon, vis-a-vis Japan in the 1990s and early 2000s, and the US from the 2007-2009 Great Financial Crisis on through about the second year of the Trump Presidency (arguably we are seeing another "lost decade" form within the US economy at the present time).