- What is 'deflation?'
- Why do central banks fear it so much?
- What falling prices really mean.
- Commodities are telling us that a global slowdown is already here.
- China's economic miracle is over.
- What happens next (please keep your preparations on track!)
The title of this part says it all. So let's begin with an important definition. What is 'deflation'?
To hear the media and central banks tell it, it is something fearful and that must be avoided at all costs. Confusingly they then point to falling prices as evidence of the horror of which they speak.
The only problem is that you and I like falling prices. If my health insurance cost 10% less next year I’d be thrilled. But the central banks would be horrified.
The difference between these two positions lies in the definition of deflation. While the media always blindly regurgitates the central bank line that falling prices are an indication of deflation they really shouldn't.