Tags: janet | Briaud | Deflation | Damage | Recovery | us | economy

Financial Adviser Briaud: Deflation Could Damage Recovery

By    |   Monday, 11 Apr 2011 01:05 PM

Inflation fears may be grabbing headlines these days but Americans should be just as worried about deflation as they are with rising consumer prices, says Janet Briaud, CEO and senior financial adviser of Briaud Financial Advisors in Bryan, Texas.

Yes, food and energy prices are climbing, but Americans also are cutting back on spending and slashing their household debts — or simply not paying them.

Such deleveraging could lead the country on a path to deflation — commonly defined as a general decline in prices, often caused by a reduction in the supply of money or credit — and which can seriously inflict damage on a weak economy in early stages of recovery.

"The concern really is that we might even have deflation instead of inflation, especially in the short run," Briaud tells Newsmax.TV.

"I think investors and people who are thinking about these things for their businesses really have to look at both scenarios: What would happen under deflation and what would happen under inflation? I think you have to think about both scenarios."

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Most Americans have never experienced deflation, a vicious economic cycle that can be just as painful as high inflation rates, Briaud says.

Plus, the debt-to-savings ratio in the United States is close to 90 percent, a figure considered to be a threshold to slower economic growth.

Furthermore, there are many baby boomers out there who haven't saved for retirement and will start doing so now, a demographic trend that can also slow growth.

"Everything is cyclical so we will have a recession again, no question. Really, the big question is when."

The dollar, meanwhile, has taken a beating in recent years although the greenback probably won't lose its status as the world's reserve currency any time soon, Briaud says. There are no other currencies capable of replacing it at least in the near future.

Gold, meanwhile, is on the rise and could continue climbing. Financial advisers still aren't recommending gold as widespread as one might think, and speculators aren't out in full force as they could be as they were at the end of the technology bubble of the late 1990s and early 2000.

"You have this speculative phase where everybody thinks it's the best thing to have in their portfolios. We don't see that yet. We don't see the bulk of investment advisors recommending gold," says Briaud, adding the precious metal could more than triple its late Friday price of  about $1,474 an ounce.

"At the end of a bull market as we saw with technology, for example, everybody believed it. Everybody had a reason why it should be. In that environment, you could see gold go to $5,000. I'm not saying it will. You just don't know."

Stocks meanwhile, have been in a bear market for several years now, and if history is indication, they have a few more years to stay there until finally venturing into bull territory.

"If you look at, historically, secular bear markets — and I'm talking about the stock market — it usually lasts somewhere around 15 years, and we've been in it for 10, so it's very possible that it's another five years," Briaud says.

"But if you look at Japan, they've had a decline and much instability for over 20 years. We certainly could see that here."

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Inflation fears may be grabbing headlines these days but Americans should be just as worried about deflation as they are with rising consumer prices, says Janet Briaud, CEO and senior financial adviser of Briaud Financial Advisors in Bryan, Texas. Yes, food and energy...
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Monday, 11 Apr 2011 01:05 PM
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