SeekingAlpha  Jun 22  Comment 
Clusterstock  Jun 22  Comment 
Albert Edwards is bullish on Brexit. In fact, the Societe Generale strategist and uber-bear believes that Brexit would end up helping the UK's economy. While Edwards did not take an official position on the outcome of the vote by UK citizens...
Japan Today  Jun 18  Comment 
The chief executive of Isetan Mitsukoshi Holdings Ltd said Japan's biggest department store chain by sales would never cut prices, even as consumers return to the deflationary mindset of delaying purchases in the expectation of price...
Reuters  Jun 17  Comment 
Japan's government kept its assessment of the economy unchanged this month but warned that consumer prices are rising at a slower pace, casting more doubt on policymakers' three-year effort to shake off deflation.
Clusterstock  Jun 16  Comment 
The eurozone remained in deflation in May, according to the latest numbers released by Eurostat on Thursday morning. Eurostat's latest data showed that consumer prices in the single currency area fell by 0.1% in May. Economists had expected...
MarketWatch  Jun 9  Comment 
Bank of Japan Deputy Governor Hiroshi Nakaso said Thursday that decisive monetary policy is “absolutely essential” for ending deflation and he won’t sit idly by if more action is necessary, keeping the door open for further easing.  Jun 8  Comment 
Supermarket’s chief executive Mike Coupe warns that pricing pressures are likely to continue Sainsbury’s has reported a slide in sales in the last three months, as it cut back on promotions, and warned that the market remained...
MarketWatch  Jun 6  Comment 
There are several potential reasons for Saudi Arabia’s plan to list a portion of its massive, state-owned oil company. But one in particular could be especially ugly for crude oil prices and rival producers, say analysts at Bernstein.
The Australian  Jun 6  Comment 
A private gauge of inflation has fallen in May, flagging the risk of a second deflationary quarter for the economy.


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Deflation happens when prices of goods and services are falling in an economy. It is the opposite of inflation.

Causes of deflation: In mainstream economics, deflation may be caused by a combination of the supply and demand for goods and the supply and demand for money, specifically the supply of money going down and the supply of goods going up.

From a monetarist perspective deflation is caused primarily by a reduction in the velocity of money and/or the amount of money supply per person.

In modern credit-based economies, a deflationary spiral may be caused by the (central bank) initiating higher interest rates (i.e., to 'control' inflation), thereby possibly popping an asset bubble or the collapse of a command economy which has been run at a higher level of production than it could actually support.

Effects of deflation: Deflation increases sales and economic activity by making essentials (food, housing, fuel etc.) which cannot be delayed, more affordable to struggling consumers, thereby reducing severity and duration of recession.

In more recent economic thinking, deflation is related to risk: where the risk-adjusted return of assets drops to negative, investors and buyers will hoard currency rather than invest it, even in the most solid of securities. This can produce the theoretical condition, much debated as to its practical possibility, of a liquidity trap.

Deflation is, however, the natural condition of hard currency economies when the rate of increase in the supply of money is not maintained at a rate commensurate to positive population (and general economic) growth. When this happens, the available amount of hard currency per person falls, in effect making money more scarce; and consequently, the purchasing power of each unit of currency increases. The late 19th century provides an example of sustained deflation combined with economic development under these conditions.

Counteracting deflation: Until the 1930s, it was commonly believed by economists that deflation would cure itself. As prices decreased, demand would naturally increase and the economic system would correct itself without outside intervention.

This view was challenged in the 1930s during the Great Depression. Keynesian economists argued that the economic system was not self-correcting with respect to deflation and that governments and central banks had to take active measures to boost demand through tax cuts or increases in government spending. Reserve requirements from the central bank were high and the central bank could then have effectively increased money supply by simply reducing the reserve requirements and through "open" market operations (e.g., buying treasury bonds for cash) to offset the reduction of money supply in the private sectors due to the collapse of credit (credit is a form of money).

With the rise of monetarist ideas, the focus in fighting deflation was put on expanding demand by lowering interest rates (i.e., reducing the "cost" of money). This view has received a setback in light of the failure of accommodative policies in both Japan and the US to spur demand after stock market shocks in the early 1990s and in 2000 - 2002, respectively. Economists now worry about the (inflationary) impact of monetary policies on asset prices. Sustained low real rates can be the direct cause of higher asset prices and excessive debt accumulation. Therefore lowering rates may prove only a temporary palliative, leading to the aggravation of an eventual future debt deflation crisis.

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