Inflation vs Deflation vs Unstable Values

Six months ago the world was facing a tremndous threat of global inflation.  So much so, the EU Central Bank, in their wisdom, raised their Interest Rate for all of Europe!  This, at the same time, was when the US had already cut rates substantially to abate the market’s collapse.

With the global economy collapsing, demand for raw materials to finished goods has fallen flat.  The basic equation of price being set at the intersection of the supply curve and the demand curve has produced current prices. Demand dropped, supply increased and prices generally have plummeted.  Risk aversion in the markets (whether currency, commodities, securities, energy or eggs) has increased drastically.  Values per unit can change by 2-10% in any given day, either following the direction from the prior trading session or setting a new direction.  Thus, the number of players in these markets have declined.  Too much inventory is spead throughout the supply chain, with each sector of the chain trying to push it off to the next.

Prices have dropped and now the greatest threat is global deflation!  Deflation could spiral as less capital is available, values of assets held declines, and the buyers patiently wait for values to fall further.

The demand for stocks has dried up , as investors fear that valuations will be forever changed (to the downside.)  Retail sales are down as people wait until they truly need something before they buy it.  Unemployement numbers are skyrocketing and with that average labor costs will come down, as people price themselves competitively to enter back into the work place.  And last, and most important, housing values will continue to fall, as credit becomes scarcer, incomes lower, and supply of available units increase.

WATCH OUT FOR FALLING PRICES!!!! THEY COULD CRUSH US ALL!!!

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