Tags: Bond | Guru | Gundlach | Deflation | Big | Concern

Bond Guru Gundlach: Deflation Is a Big Concern

Friday, 24 Sep 2010 07:53 AM

The United States economy is at risk from deflation that could hamper further recovery, says Jeffrey Gundlach, bond guru and DoubleLine Capital founder.

The government has been printing money to feed its large stimulus programs, which would indicate inflation is looming as opposed to deflation.

Deflation is commonly defined as a widespread and prolonged drop in wages and the prices of goods and services, home values, stocks and other assets. Inflation is a persistent rise in the prices of goods and services for consumers, as well as a run-up in commodity prices like oil. To try to keep ahead of rising prices, workers will demand higher pay, leading to wage inflation.

However, a look at other sectors of the economy suggests that consumer prices are due for a drop.

“Stocks are down over the past 10 years. Real estate is down hard over the last five years," Gundlach tells Morningstar. "Commodities are down sharply over the last two years. Instead of spiking to double digits, bond yields are hugging the ground,” he said.

“The markets and the economy to date have offered scant evidence to support the inflation case.”

Society, Gundlach says, is no longer interested in running a debt-based consumer economy.

“So, deflationary forces still prevail.”

The Federal Reserve has said that current inflation levels, creeping up 0.9 percent on year in August, are “somewhat below” desirable levels.

While inflation is often vilified, deflation can be just as bad, often resulting in shrinking corporate profits, pay cuts and rising foreclosure and bankruptcy rates.

The Fed has said it will do whatever is necessary to prevent deflation, including buying government debt in an effort to drive down interest rates, which could spark more borrowing and spending and in turn, keep consumer prices healthy.

“The average person may be bewildered by the Fed's concern about deflation,” Allen Sinai, chief economist at Decision Economics, tells the Associated Press.

“But part of its job is to be educational. The Fed wants people to know it is not going to let this rare disease happen.”

© 2017 Newsmax Finance. All rights reserved.

 
1Like our page
2Share
StreetTalk
The United States economy is at risk from deflation that could hamper further recovery, says Jeffrey Gundlach, bond guru and DoubleLine Capital founder. The government has been printing money to feed its large stimulus programs, which would indicate inflation is looming as...
Bond,Guru,Gundlach,Deflation,Big,Concern
341
2010-53-24
Friday, 24 Sep 2010 07:53 AM
Newsmax Inc.
 

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

NEWSMAX.COM
MONEYNEWS.COM
© Newsmax Media, Inc.
All Rights Reserved