As far as I can tell, Elliott Wave International is the only firm that houses analysts warning of an inevitable, full-scale, economically devastating deflation. You can bet that when it is in full swing, dozens or hundreds of commentators will claim that they warned of deflation, and our voice will be lost in the clamor. The biggest event that the history books will record is not the jumps in investment markets from 2003 to 2006 but the across-the-board collapse that is about to follow. Cash is going to be king, so make sure you have some.

Because of the tremendous, unprecedented build-up in credit, the deflation will probably be swift…. Banks will fail. Insurance companies will fail. Many values that people think they own—in the form of mutual funds, stock portfolios, bond portfolios, commodity-index funds, bank accounts, insurance contracts, real estate, etc.—will evaporate. When the markets fall and the economy weakens, the price of money falls with them, so interest rates go down.… You can bet that the price of money will fall right along with the markets and the economy. Pundits will say that the Fed is “fighting” deflation, but it will simply be lowering its prices in line with the others. Debt has permeated society out to the very edges of viability. Marginal debtors are the very bedrock of the whole system. The double irony is that (1) marginal debtors are about to expand their numbers, and (2) it won’t help the system but will kill it, because most of the marginal debtors will morph into bankrupt debtors.

- Excerpted from the June 16, 2006, Elliott Wave Theorist