Tags: Mauldin | inflation | deflation | price

John Mauldin: America Faces Simultaneous Inflation and Deflation

By    |   Friday, 14 November 2014 12:30 PM

The United States does not face a hard choice of coping with inflation on the one hand or deflation on the other — it faces both at the same time, according to John Mauldin, president of Millennium Wave Advisors.

In his view, whether the country is beset by inflation depends on each person's different circumstances — their age, location or other criteria.

For instance, Mauldin noted that parents with children in college face the sharp pinch of inflation now in the form of escalating tuition costs, while parents with young children may not feel that pressure for years to come.

And in some parts of the country, real estate prices are still flat and have not come close to recovering to their 2008 peaks — evidence of deflation.

"It depends on who you are and what you're doing," he told Yahoo.

When government inflation researchers take their measurements, Mauldin said they have to take the broadest possible basket of goods and services — not just the inflating price of a gallon of milk versus the deflating price of a gallon of gas — to come up with official levels of the cost of living. "The general price level is trending down," he said of the broad U.S. economy.

Mauldin said the one area where artificially rising prices have undeniably taken root is on Wall Street.

"Asset inflation is where monetary inflation has shown up," he declared.

Mauldin believes financial bubbles in stocks and bonds ultimately will burst, which will usher in a period of monetary deflation and trigger a recession.

Going forward, Mauldin believes the strong dollar fostered by the machinations of global central banks to fight deflation will make it tougher for big U.S. corporations to make profits.

Worldwide, the biggest fear among economists now appears to be deflation — not runaway inflation of the sort that leads to skyrocketing bread or energy costs.

John Cochrane, professor of finance at the University of Chicago Booth School of Business, noted that with inflation in Europe falling to 0.3 percent and the U.S. inflation rate also falling, the International Monetary Fund has its eye on deflation problems.

However, fears of global deflation are grossly overblown, he wrote in an opinion piece for The Wall Street Journal.

"Nowhere, ever, has an economy such as ours or Europe's, with fiat money, an interest-rate target, massive excess bank reserves and outstanding government debt, experienced the dreaded deflation spiral. Not even Japan, though it has had near-zero inflation for two decades, experienced the predicted spiral," Cochrane argued.

The Cultural Economist blog predicts global government stimulus policies are bound to fuel worldwide inflation in 2015.

"Liberal ideology will encourage (and demand) national central banks print copious amounts of money. The resulting currency devaluation is likely to increase the cost of living. It is possible the net effect will be to drive OECD nations into a long period of high inflation accompanied by declining business activity. Expect high rates of unemployment and underemployment. Poverty and liberal theology will drive widespread social unrest."

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The United States does not face a hard choice of coping with inflation on the one hand or deflation on the other — it faces both at the same time, according to John Mauldin, president of Millennium Wave Advisors.
Mauldin, inflation, deflation, price
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2014-30-14
Friday, 14 November 2014 12:30 PM
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