It's official: After a 50%-plus rally in U.S. stocks, the fear of deflation has gone from "real, cataclysmic threat" -- to -- imaginary bogeyman hiding under the beds of the few remaining uber-bears. Turn on the "lights" of reality, and said monster supposedly disappears into thin air.
Here, the following mainstream news items from mid-to-late 2009 speak volumes:
- "US Moves Away From Deflation" and "Deflation Is Dead" (AP)
- "Deflation Has Been Averted." -- OneFederal Reserve Bank president.
- "The massive amounts of money that governments and central banks worldwide have been pumping into the financial system are underpinning an economic turnaround that will keep deflation at bay." (LA Times)
And there in lies the biggest misconception in recent history; namely: So long as the Fed and the entire brigade of bailout-bazooka toting officials continue to increase the money supply via interest rate cuts, stimulus packages, and the printing press -- then deflation is an impossibility.
BUT -- as EWI's president Robert Prechter has explained again and again in recent media interviews and elsewhere, this is only true so long as said increase in money supply is also followed by a RISE in the issuance AND assumption of credit.
(Deflation Is NOT Dead: In the brand-new November Elliott Wave Theorist, Bob Prechter reveals several signs of deflation emerging in the quality of bank deposits, loan availability, commercial real estate, consumer credit, the municipal bond market, and more. Get these groundbreaking insights today, risk-free.)
It comes down to this: Are the sources of credit (banks) lending more, and are the receivers of credit (consumers) taking on more debt? The answer is a resounding "no," as revealed in startling detail on pages three through ten of the November 19, 2009 Elliott Wave Theorist.
In this riveting examination of the true measures of economic growth, Bob Prechter presents the following pair of charts of Total Consumer Credit since 2000, AND the Year-Over-Year change in Total Loans & Leases at All Commercial Banks since 1948.
In Bob Prechter's own words: "Credit card lending, a formerly humming engine of credit, is now sputtering" as consumers aim to pay down their debt -- all the while, bank lending is collapsing.