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2009 – Get ready for massive deflation, US dollar destruction and the global economy slump further into recession

Posted by Adrian on January 6, 2009

A trader from Japan noted in a report that he felt that volatility had diminished, or at least volatility had narrowed within a range. The trader may be correct, volatility has tone down somewhat, but the markets still represent dysfunction. Not to forget the oil price, that decided to move back into the high 40’s on the back of the Israel invasion into Gaza Strip – remember the oil spike is not so much on the Israel blockade and attack on Gaza, the oil spike is on the back of Iran (and a wider middle east conflict) and it’s response.

But the global economy is falling into a sharp downtrend, which is now unstoppable (until it reaches a bottom). Hence massive deflation is on the horizon, no matter how much is spent and how much stimulus is given out, confidence in the global economy has been shattered, therefore a stimulus package is essentially a waste of money and it is a token gesture at best

So it could be assessed that global stock markets could decline in a massive sell off, under the weight of very poor corporate earnings, the bubble bursting in US Treasuries and a substantial sell off of the US dollar (capital flight out of America); and mix in a broader conflict in the middle east. We could be a the edge of a huge price decline on everything, hence a massive wave of deflation beginning at the end of the first quarter of 2009.

Traders and some commentators are now looking at US Treasuries as the next bubble to burst and a bigger slide in the US dollar. As Obama will attempt sell a muted (with tax cuts) stimulus package to congress, regardless it will put pressure on the USD – and I think this time, as opposed to the USD recovery in mid 2008, it will definitely get crunched very hard in 2009.

But in saying that massive deflation is on the horizon also means the rise in the Japanese Yen, Gold and now possibly Oil. With money outflowing out of stocks, Treasures and USD, it will end up with the very few safe havens left.

Global indices generally were flat into 2009, the ‘feel good’ rallies in the first week of 2009 started from Wall Street, although Asia was subdued, now Europe’s main Indies rallied as the US stocks fell. These rallies won’t last, in fact they are barely rallies. There are speculative at best, as new year profit driven trading begins – but the bad news is just settling in. As mentioned, the narrow volatility range now could indicate that the market is waiting for the next shoe to drop which could be a nasty deflation slump, with inflation remaining on food and other essential amenities.


4 Responses to “2009 – Get ready for massive deflation, US dollar destruction and the global economy slump further into recession”

  1. BarterMan said

    Sadly for most 😦 we only have one way to bail ourselves out of this economic mess, and that is to revert back to a system based on barter again, albeit temporarily.

    We are technically bankrupt and have been for a long while. The Fed just printing and lending more “debt notes” to Government so Obama can hand it out to the irresponsible has just put more fuel on the fire, and grown the tax burden our grandchildren will have to pay one day.

    Look at what happened in Argentina in 2001? We are headed in the same direction. Thankfully we have companies like Merchants Barter Exchange that had the foresight in 2000 to plan for such a global meltdown and impliment a national bartering platform. for more info.

  2. Iain said

    Dear Sir,

    You are I beleive correct to say that we have entered a period of deflation, which is I am afraid about to become much worse… Once this deflation really begins to take hold (world wide) we shall not only see a massive rally in Bonds but also a surging US Dollar as people flee to what are regarded as safe havens as world stock markets plummet. At some point down the road, but not yet, the vast amounts of money now being printed by governments around the world will take effect, and we will shall see inflation return with a vengence. In the longer term the US Dollar is finished, it will lose it`s position as the worlds reserve currency that it holds today and will be replaced by by another… possibly the Japanese Yen.

    6th July 2009

  3. […] The world is on fire.  Economic pundits cover the spectrum, speculating that hyperinflation or massive deflation is coming.  Maybe they’re both right.  Some people are actually on record suggesting that […]

  4. world stock market…

    […]2009 – Get ready for massive deflation, US dollar destruction and the global economy slump further into recession « morbius glass[…]…

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