Is inflation dead? Yes, says Washington Post reporter Matt O'Brien
"R.I.P., inflation. You had a good run, but it's over now that prices are rising less than 1 percent in the United States, United Kingdom, Europe, China and Japan," he writes.
O'Brien's view was backed up — as far as the United States is concerned anyway — by Wednesday's report showing that U.S. producer prices fell 0.8 percent in January, the biggest drop since November 2009,
"The problem is credit bubbles," he says. "Just when the world gets over one of them, another one bursts and drags everyone down again. Japan's popped first in the early 1990s, and it's never fully recovered."
And Europe? "With its debt, deflation and 11.4 percent unemployment, it is well on its way toward becoming the next Japan, or worse," O'Brien states. The eurozone economy grew only 0.9 percent last year.
"Put it all together, and you get falling demand that's turning into falling inflation," he writes.
"Inflation is just a scare story people old enough to remember the 1970s tell."
Another worry for the global economy and financial system is currency war. It's raging around the world, as central banks outside of the United States seek to devalue their currencies to boost their sluggish economies.
And China is poised to intensify its involvement in the skirmish, many experts say.
"The economic backdrop, with a race to the bottom, tells me that the [yuan] is likely to experience weakness in the years ahead," Russell Thompson, chief investment officer at Cambridge Strategy hedge fund, tells The Wall Street Journal
. China is "caught in a debt trap."
China's slowing economic growth will push the government to depress the currency, foreign exchange market participants say. Chinese GDP rose 7.4 percent last year, the slowest rate in 24 years.
The yuan has slid 0.8 percent so far this year in mainland trading, after dropping 2.4 percent in 2014, its biggest annual decline since the Chinese government began letting the currency drift upward in 2005.
"The market has gone as far as the market can go without a policy move," Chris Morrison, head of strategy at hedge fund Omni Macro Fund, tells The Journal. The problem is, "the Chinese authorities don't want to appear panicked or under pressure, as this will only encourage [Chinese yuan] outflows in the short run."
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