Silicon Valley Watcher - Former FT journalist Tom Foremski reporting from the intersection of technology and media

Yikes! Fed Data Shows Accelerating Deflation

Posted by Tom Foremski - June 19, 2009

Silicon Valley's startup world operates in its own future bubble of possible exits but it does depend on today's financial markets for drawing investments. Over the six months there has been a lot of concern about inflation but inflation can be good because it encourages investments today. Today's assets are worth more tomorrow.

With deflation, it is wiser to hold-off investments because tomorrow brings a lower price.

The massive injection of money into economies by the US government, and other governments, has brought the fear of hyper-inflation. But it now looks like the problem is hyper-deflation.

Over at Mish's Global Economic Trend Analysis there is an interesting entry discussing a post by analyst Martin Weiss on the latest Federal Reserve data, which shows that there is very little lending going on, and that the credit market meltdown got worse -- not better -- in the first quarter of this year.

Open Market Paper: Instead of growing as it had in almost every prior quarter in history, it collapsed at the annual rate of $662.5 billion.

Banks lending: Credit markets [collapsed] at the astonishing pace of $856.4 billion per year, their biggest cutback of all time.

Nonbank lending: pulled out at the annual rate of $468 billion, also the worst on record.

Mortgage lenders: pulled out for a third straight month. (Their worst on record was in the prior quarter.)

Consumers: were shoved out of the market for credit at the annual pace of $90.7 billion, the worst on record.

The ONLY major player still borrowing money in big amounts was the United States Treasury Department, sopping up $1,442.8 billion of the credit available — and leaving LESS than nothing for the private sector as a whole.

Bottom line: The first quarter brought the greatest credit collapse of all time.

New, Hard Evidence of Continuing Debt Collapse!

Mish states: "Those who get hyperinflation out of this picture must be reading the playbook in Bizarro World because it sure is not the playbook here."

Here is the entire post with tables: Mish's Global Economic Trend Analysis: Flow of Funds Report Offers Hard Evidence of Deflation

Foremski's Take:

The Federal Reserve data shows that fiddling with an extremely complex economic system by injecting massive amounts of liquidity to mitigate the excesses of the prior economic cycle isn't going to work. The economic global system needs to destroy massive amounts of capital through the mass devaluation of assets and labor before it can stabilize and restart growth.

Massive borrowing won't be able to avoid the pain that our global economy has to go through and that means we are in for a hellish time. It is worth remembering Winston Churchill who said, if you are going through hell it is important to remember to keep going.

Story link | Subscribe free | Categories: Silicon Valley




ForemskiInnovator.jpg

The Holmes Report names Tom Foremski one of the top 25 Innovators of 2013.




-->