Thursday, June 24, 2010

Notes from the deflationary quicksand

clipped from

Deflationary quicksand… We will all end up Japanese… Collapsing houses of cards…

Yes, it’s another missive from SocGen’s perma-bear Albert Edwards, who on Thursday developed some recent riffs on deflation a tad further:

…although our deflationary arguments are gaining some traction in the bond market, investors have yet to fully acknowledge we are now walking on the deflationary quicksand that will inevitably suck us towards total fiscal and financial ruin – you ain’t seen nothing yet. With core inflation rates now sub-1% in the eurozone and the US, we are only one recession away from Japanese-style deflation.

Albert thinks recession will return by the end of the year, but that’s not the main issue. The real problem is that private-sector de-leveraging has barely begun, Edwards says, especially if you strip out the efforts made by financials — see chart (click to enlarge):

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