On October 2 2009,
Nobel prize winning economist Joseph Stiglitz says:
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Deflation is definitely a threat right now.
Alan Greenspan said on September 30th:
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We are still, by any measure, in a disinflationary environment.
And the President of the Chicago Federal Reserve Bank, Charles Evans, said on September 9th:
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Disinflationary winds are blowing with gale-force effect.
Flattening Yield Curve Points Toward Deflation
PIMCO's Bill Gross said:
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There
has been significant flattening on the long end of the curve,” Gross
said in an interview from Newport Beach, California, with Bloomberg
Radio. “This reflects the re- emergence of deflationary fears. The U.S.
is at the center of de-levering as opposed to accelerating growth.
Gluskin Sheff's David Rosenberg, Tyler Durden and Mish also believe that a flattening yield curve indicates deflation.
Bloomberg notes:
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The
difference in yield between nominal and inflation-protected Treasury
securities maturing in one year is negative 0.4 percent, suggesting
investors expect deflation during the next 12 months.
"....so we are still in a deflationary environment where banks fail, assets fall and
the economy deleverages. However as history shows, government bonds were sold
in the deflationary spiral of 1930-32. The excuses were two fold: liquidity
concerns and inflation fears. Banks sold bonds (their mortgages were frozen) to
raise cash reserves in case depositors decided to withdraw funds. In addition,
major government interventions at the time (sound familiar?) caused a fear of
long term inflation. The dumping of Treasury Bonds finally stopped in June of
1932 (the same month as the stock market bottomed). So Bonds depreciated in the
historic deflation of the early 1930’s, but is this relevant today? The current bull
market in Bonds has lasted since 1980. But only recently has the Treasury Bond
market registered a record extreme in bullish consensus according to MBH
Commodities' Daily Sentiment Index. Now for the first time in 28 years, 99% of
traders believe the upward trend will continue. Remember when everyone "thought real estate could only
go up in value? At this point, the Treasury Bond market is swaggering around,
certain of its own opinion that it cannot fall."