Debt Deflation

Central banks in most countries strive to keep inflation low, but positive – usually in the 1-3% range. Since 1950, U.S. inflation, as measured by the annual change in the U.S. Since 1991, the range has been narrower (+1.6 percent to +3.3 percent). During this period, some less developed countries have experienced episodes of hyperinflation with rates exceeding 50 percent per month, while Japan has experienced negative inflation (“deflation”) of around one percent per year. Inflation rates vary over time and among countries and currencies.

In addition, investors could take advantage of inflation-indexed bonds, in which the nominal value and/or the coupon are linked to consumer price trends. If inflation rises, for example, the coupon payment due on these securities increases accordingly. Most Republican administrations favor tax cuts to promote economic growth. We saw this with the Ford administration, but it was also a large motivation for the Reagan tax cuts.

At the same time, the pandemic has also raised unemployment, increasing the supply of labor. The proximate cause of the fall in inflation has been a collapse in demand.

Is the Fed’s purchase of lower quality assets inflationary? Probably no more so than expansion of its balance sheet with higher-quality assets … until the Fed might need to redeem those assets at a time when they show a loss.

Only in an economy that continues to take unexpected twists and experience new surprises will there be significant amounts of unanticipated inflation. Even in this case, however, market mechanisms can arise that eliminated some of the risks associated with unanticipated inflation. We saw that at the end of the 1970s variable rate mortgages and cost of living clauses became much more popular than they were at the beginning of this decade of unexpected change. The paper details how two main arguments about inflation and unemployment developed in the mid-twentieth century. The first saw the Phillips Curve as a “cruel dilemma” that forces policymakers to choose between price stability and full unemployment. The second, as advocated by Milton Friedman, does not see a long-run conflict between these two goals.

Today, short-term rates have minimal yield, but long term bonds are highly susceptible to a decline in value if/when inflation and rates rise. Consequently, investors that want to hedge the opposite of inflation their fixed income portfolio against divergent paths for inflation are advised to blend fund holdings with varying duration or to employ a bond portfolio with laddered maturities.

While investors buy gold for a variety of reason, one of the best predictors of gold’s price is the real yield. Negative real yields are bullish for gold as evidenced by the 50% rise in gold over the last 24 months as shown in the chart below in which the gold line and right hand scale shows the real yield inverted.

You don’t have to be a “gold bug” to consider some gold or gold stocks for a portfolio in this market. With other central the opposite of inflation banks already buying equities, the prospect of the Fed doing likewise given sufficient duress is not out of the question.

Are We Missing A Good Antonym For Inflation?

In that event, confidence in the Fed could become at issue. This is probably nothing investors need to worry about in any near-term timeframe, but ultimately this confidence is an essential underpinning of our financial universe. U.S. and European governments are now subsidizing the opposite of inflation wages and paying workers not to work. Workers who had previously accepted poor pay and conditions are becoming assertive. Employees of Amazon, long targeted by worker complaints, protested working conditions resulting in Amazon spending $4 billion on virus-related changes.

• In a dynamic economy as tastes and technology change, we would expect demand shifts which would cause prices to rise in some market and prices to fall in other markets.
• The Fed lowers rates to make borrowing money cheaper, and the increased money supply pushes prices up.
• In the last half of this century we have not experienced significant periods of deflation.
• When this representative market basket costs more, we have inflation.
• Both policies were intermittently pursued as the economy shifted back and forth between high unemployment and rapid inflation in the 1970s.
• We can only gauge whether the price increases offset the price increases by looking at the cost of a representative market basket of good.

Why Rising Prices Are Better Than Falling Prices Yes, Really.

It’s also caused by technology changes, such as more efficient computer chips. the opposite of inflation For example, China keeps its currency’s value low compared to the U.S. dollar.

Inflation Finally Bubbles To The Surface

That allows it to underprice U.S. manufacturers, lowering prices on its exports to the United States. It began in 1989, the opposite of inflation when the Bank of Japan raised interest rates. A massive, widespread drop in prices is always bad for the economy.

Is Recession The Opposite Of Inflation?

Many economists think the low interest rates of the mid-1970s ultimately led to the high inflation of the late 70s and early 80s. Also, low interest rates – which mean cheap borrowing costs – can lead to excessive lending, speculation and the opposite of inflation finally an economic crash. Indeed, low interest rates preceded the housing boom of the 1990s and 2000s, which ended in the housing crash of the Great Recession. Unemployment moves in the opposite direction to changes in interest rates.