Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Precious Metals Warn Of Increased Volatility Ahead - 2nd Aug 20
The Key USDX Sign for Gold and Silver - 2nd Aug 20
Corona Crisis Will Have Lasting Impact on Gold Market - 2nd Aug 20
Gold & Silver: Two Pictures - 1st Aug 20
The Bullish Case for Stocks Isn't Over Yet - 1st Aug 20
Is Gold Price Action Warning Of Imminent Monetary Collapse - Part 2? - 1st Aug 20
Will America Accept the World's Worst Pandemic Response Government - 1st Aug 20
Stock Market Technical Patterns, Future Expectations and More – Part II - 1st Aug 20
Trump White House Accelerating Toward a US Dollar Crisis - 31st Jul 20
Why US Commercial Real Estate is Set to Get Slammed - 31st Jul 20
Gold Price Blows Through Upside Resistance - The Chase Is On - 31st Jul 20
Is Crude Oil Price Setting Up for a Waterfall Decline? - 31st Jul 20
Stock Market Technical Patterns, Future Expectations and More - 30th Jul 20
Why Big Money Is Already Pouring Into Edge Computing Tech Stocks - 30th Jul 20
Economic and Geopolitical Worries Fuel Gold’s Rally - 30th Jul 20
How to Finance an Investment Property - 30th Jul 20
I Hate Banks - Including Goldman Sachs - 29th Jul 20
NASDAQ Stock Market Double Top & Price Channels Suggest Pending Price Correction - 29th Jul 20
Silver Price Surge Leaves Naysayers in the Dust - 29th Jul 20
UK Supermarket Covid-19 Shop - Few Masks, Lack of Social Distancing (Tesco) - 29th Jul 20
Budgie Clipped Wings, How Long Before it Can Fly Again? - 29th Jul 20
How To Take Advantage Of Tesla's 400% Stock Surge - 29th Jul 20
Gold Makes Record High and Targets $6,000 in New Bull Cycle - 28th Jul 20
Gold Strong Signal For A Secular Bull Market - 28th Jul 20
Anatomy of a Gold and Silver Precious Metals Bull Market - 28th Jul 20
Shopify Is Seizing an $80 Billion Pot of Gold - 28th Jul 20
Stock Market Minor Correction Underway - 28th Jul 20
Why College Is Never Coming Back - 27th Jul 20
Stocks Disconnect from Economy, Gold Responds - 27th Jul 20
Silver Begins Big Upside Rally Attempt - 27th Jul 20
The Gold and Silver Markets Have Changed… What About You? - 27th Jul 20
Google, Apple And Amazon Are Leading A $30 Trillion Assault On Wall Street - 27th Jul 20
This Stock Market Indicator Reaches "Lowest Level in Nearly 20 Years" - 26th Jul 20
New Wave of Economic Stimulus Lifts Gold Price - 26th Jul 20
Stock Market Slow Grind Higher Above the Early June Stock Highs - 26th Jul 20
How High Will Silver Go? - 25th Jul 20
If You Own Gold, Look Out Below - 25th Jul 20
Crude Oil and Energy Sets Up Near Major Resistance – Breakdown Pending - 25th Jul 20
FREE Access to Premium Market Forecasts by Elliott Wave International - 25th Jul 20
The Promise of Silver as August Approaches: Accumulation and Conversation - 25th Jul 20
The Silver Bull Gateway is at Hand - 24th Jul 20
The Prospects of S&P 500 Above the Early June Highs - 24th Jul 20
How Silver Could Surpass Its All-Time High - 24th Jul 20
China Recovered in Q2. Will the Red Dragon Sink Gold? - 23rd Jul 20
UK Covid19 MOT 6 Month Extensions Still Working Late July 2020? - 23rd Jul 20
How Did the Takeaway Apps Stocks Perform During the Lockdown? - 23rd Jul 20
US Stock Market Stalls Near A Double Peak - 23rd Jul 20
Parking at Lands End Car Park Cornwall - UK Holidays 2020 - 23rd Jul 20
Translating the Gold Index Signal into Gold Target - 23rd Jul 20
Weakness in commodity prices suggests a slowing economy - 23rd Jul 20
This Stock Market Stinks - But Not Why You May Think - 22nd Jul 20
Protracted G7 Economic Contraction – or Multiyear Global Depression - 22nd Jul 20
Gold and Oil: Be Aware of the "Spike" - 22nd Jul 20
US Online Casino Demographics: Who Plays Online For Money? - 22nd Jul 20
Machine Intelligence Quantum AI Stocks Mega-Trend Forecast 2020 to 2035! - 21st Jul 20
How to benefit from the big US Infrastructure push - 21st Jul 20
Gold and gold mining stocks are entering a strong seasonal phase - 21st Jul 20
Silver Eyes Key Breakout Levels as Inflation Heats Up - 21st Jul 20
Gold During Coronavirus Recession and Beyond - 21st Jul 20
US Election 2020: ‘A Major Bear Market of Political Decency’ - 21st Jul 20
Summertime Sizzle for Gold and Silver - 21st Jul 20
Overclockers UK Custom Built PC Review - Delivery and Unboxing (3) - 21st Jul 20
Will Coronavirus Vaccines Become a Bridge to Nowhere? - 20th Jul 20
Stock Market Time for Caution?  - 20th Jul 20
ClickTrades Review - The Importance of Dynamic Analysis and Educational Tools in Online Trading - 20th Jul 20
US Housing Market Collapse Second Phase Pending - 20th Jul 20
Capitalising on the AI Mega-trend - 20th Jul 20
Getting Started with Machine Learning - 20th Jul 20
Why Moores Law is NOT Dead! - 20th Jul 20
Help the Economy by Going Outside - 19th Jul 20
Stock Market Fantasy Finance: Follow the Money - 19th Jul 20
Did the Stock Market Bubble Just Pop? - 19th Jul 20
Quick Souring of the S&P 500 Stock Market Mood - 19th Jul 20
The Six-Year Jobs Recession - 19th Jul 20
Silver Demand Exploding! - 18th Jul 20
Tesco Scraps Covid Safe One Way Arrow Supermarket Shopping System - 18th Jul 20
The Rise of Online Pawnbroking - 17th Jul 20
Gold Rallies Together With U.S. Covid-19 Cases - 17th Jul 20
Gold & Silver Measured Moves - 17th Jul 20
The Bizarre Mathematics Of How Negative Interest Rates Create Stratospheric Profits - 17th Jul 20
From a Stocks Bull Market Far, Far Away, Virus Doomsday Scenerio! - 16th Jul 20
Fiscal Cliffs and the Self-destructing Treasury - 16th Jul 20
Dow Stock Market Crash Watch - Update - 16th Jul 20
Gold & Silver Gaining on US Dollar Weakness - 16th Jul 20
How to Find the Best Stocks to Invest In - 16th Jul 20
Overclockers UK Custom Build PC Review - 2. System Build Changes Communications - 16th Jul 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

Deflation becomes the Dominant Economic Trend

Economics / Deflation Jul 12, 2010 - 09:34 AM GMT

By: Clif_Droke

Economics Best Financial Markets Analysis ArticleOne of the abiding fears since the government stimulus effort began in earnest last year has been the fear that runaway inflation will once again rear its ugly head. Legions of market commentators have predicted the return of inflation in spite of the deflationary environment we find ourselves in.

Can we reasonably expect a return of inflation in the foreseeable future? The Kress Cycles say “No!” and tell us to expect just the opposite, namely a deflationary trend. This has certainly been the dominant economic trend since the credit crisis of 2008 and, in some areas, even before then.

Government has for years been dead set on fighting deflation with re-inflationary countermeasures. The combined efforts of government spending and central bank pump priming have by and large met with success in combating the immediate effects of deflation. After the unprecedented rollercoaster ride of the past two years, however, it’s beginning to look like policy makers have capitulated to the deflationary trend. In place of the reactionary Keynesianism of years past, a startling about-face has occurred in which governments and central banks in the developed countries have embraced austerity and capitulation to the deflationary trend.

Congress recently failed to extend unemployment benefits and abandoned plans for another round of stimulus to combat what is the worst economic recession in over a generation. Ironically, a leading socialist news service found itself in the unlikely position of criticizing the Democrats for their collective failure to increase government spending. Under the headline ”Obama, Democrats abandon stimulus for austerity,” the International Committee for the Fourth International (ICFI) wrote, “With long-term unemployment at its highest level since records began in the 1940s, the Obama administration and Democratic congressional leaders are abandoning even the wholly inadequate economic stimulus measures of last year and focusing instead on budget-cutting and austerity.” The article went on to lament the administration’s 5 percent budget cut, amounting to $250 billion over 10 years. This prompted one commentator to ask, “Will President Obama be America’s first deflationary Democratic?”

ICFI also emphasized Federal Reserve Chairman Ben Bernanke’s demand that Congress and the White House formulate a plan to sharply reduce the US deficit, projected to reach $1.6 trillion this year. The widespread obsession over deficit reduction, both here and abroad, is deflationary.

ICFI continues, “Under conditions of harsh budget-cutting across Europe, renewed crisis and volatility in financial and currency markets and the threat of a new global credit crunch, the prospects for a serious revival in US production and exports are remote. Yet the White House and the Democratic-led Congress are essentially ignoring the jobs crisis and condemning the American people to years of near-doubled-digit unemployment. They are doing so at the behest of the major banks and financial firms, which demand fiscal austerity to protect their speculative investments, profits and gargantuan salaries.”

It’s quite remarkable and even amusing to read a left-wing commentary that is critical of what is widely considered a socialistic federal government. Obama was widely hailed by the socialists as a political savior when he was first elected. And yet here we are 18 months later and it has come to this.

An article appearing in the Wall Street Journal recently drew attention to a surprising deflationary mindset among policy makers. “Deflationary Mindset Makes Itself at Home,” writes Kelly Evans in a recent issue of WSJ. As Kelly observed, “Policy makers generally have an easier time slowing an overheated economy than trying to stimulate a contracting one.” In the present case it appears that policy makers have given up even trying. Kelly points out that in spite of multi-decade lows in mortgage rates, borrowing activity is falling, not rising. The same declining trend in borrowing can be seen in the long-term graph showing consumer credit outstanding.

The above graph is the very epitome of deflation and in a nation like the U.S. whose economy is heavily depending on consumer spending, there is no bigger indication that deflation is the dominant long-wave economic trend.

The housing market is another major indication of how K Wave and Kress cycle deflation is exerting its influence. “The bigger worry,” as Kelly observed, “may be that a deflationary mindset has taken hold in the housing market. This has buyers in no hurry to lock in even today’s low rates.” A recent survey by the Conference Board found that only 1.9 percent of consumers plan to buy a home in the next six months, one of the lowest readings since 1982. Tighter lending standard, as Kelly points out, is another roadblock to inflation as many households remain cash-strapped.

Yet another indication of deflation is the fact that the level of MZM money stock has diminished significantly over the last 12 months, and for only the sixth time in the last 50 years. One reason for this diminution of MZM is that only some of the money has come out of the bunker since the crisis of 2008, while there continues to be a general decline in risk appetites and the desire to borrow. As analyst Mark Dodson observed, “One conclusion is that in spite of all the action that the Fed has undertaken, Fed policy remains more deflationary than inflationary.”

It’s not any coincidence that the credit crisis of 2008, being six years from 2014, was technically when the final “hard down” phase of the Kress 60-year cycle started. The hard down phase of the 60-year cycle, scheduled to bottom in 2014, is defined as the runaway deflationary leg of the cycle. It also roughly coincides with the Kondratieff long wave, which also implies a deflationary environment as we head toward 2014.

K Wave analyst David Knox Barker has pointed out that government tends to be behind the curve where the economic long wave is concerned. Not uncommonly does history record the belated actions of the feds in trying to extinguish financial fires, of which the credit crisis of 2008 affords an excellent example. Had the combined efforts of the Fed and the Treasury been any slower in coming to the rescue at that time, the financial superstructure might have been entirely consumed in the credit conflagration.

Unfortunately, as history attests, government action in fighting against deflation tends to be inadequate and deflation at some point usually gains the upper hand. As Barker has stated in his book on the K Wave, government has a tendency to underestimate the severity of the deflationary problem and therefore does too little to counteract the hyper-deflationary forces of the economic long wave. That appears to be the case now as the government sits on its proverbial hands under the false assumption that its previous efforts at staving off deflation were ultimately successful.

As we touched on earlier, this year is the “down” year of the alternate, or 2-year, cycle. In the down year of this particular cycle the deflationary bias of the bigger cycles, namely the 40-year and 60-year cycles, tend to be especially felt if there isn’t a counteracting influence such as a massive monetary stimulus. Since this is an unlikely event anytime soon, it means investors will need to be on the lookout for the reappearance of extreme volatility, particularly in the months of August and September and until the 2-year cycle bottoms later this fall.


Over the years I’ve been asked by many readers what I consider to be the best books on stock market cycles that I can recommend. While there are many excellent works out there on the subject of technical and fundamental analysis, chart reading, etc., precious few have addressed the subject of market cycles. Of the relatively few books on cycles that are available, most don’t even merit mentioning. I’ve read only one book in the genre that I can recommend – The K Wave by David Knox Barker – but even that one doesn’t deal directly with stock market cycles but instead with the economic long wave. I’m pleased to announce, however, that after nearly 10 years of research and one year of writing, I’ve completed a book on the subject that I believe will meet the critical demands of most cycle students. It’s entitled, The Stock Market Cycles, and is available for sale at:

By Clif Droke

Clif Droke is the editor of the daily Gold & Silver Stock Report. Published daily since 2002, the report provides forecasts and analysis of the leading gold, silver, uranium and energy stocks from a short-term technical standpoint. He is also the author of numerous books, including 'How to Read Chart Patterns for Greater Profits.' For more information visit

Clif Droke Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules