A Reuters analysis article yesterday casually reported that “Inflation-indexed bonds…are taking [a] beating as deflation starts to take hold.” Is it true that deflation is starting to take hold? We cannot doubt there have been three consecutive months of deflation. The economy seems far more challenged today than I have ever seen it. But is deflation starting to take hold?
We know that as of November 2008, we have now had deflation for 3 consecutive months and this is the tenth multi-month period of deflation in the past 60 years.
Is deflation starting to take hold? The data over the past 60 years simply does not support that conclusion. It may turn out to be true that deflation is taking hold. But we don’t know that today and until it is a fact, it is not real, it is not true and it is a mis-characterization of the facts.
Only time will tell if deflation is starting to take hold, and by then, it will be history. Life happens only in this very moment. We have to make decisions here and now. We can never decide or act in the past or the future because history and future are not alive. We cannot really know what we now face until it has become history. That’s the blessing and challenge of life.
Is this just some new age philosophical nonsense? I think not.
If you are like me, the statement that deflation is starting to take hold produces an entirely different reaction or thought pattern than the statement, “our past three deflationary months has only been seen nine previous times in the past 60 years.” This subtle distinction would result in a completely different set of decisions and actions.
In a volatile period, it is essential that we see what is real and not allow our thought process to distort our view of reality. Otherwise our decisions and actions will be distorted vis-a-vis reality. No one wants that for themselves. Clear seeing is the solution.
Note: The Reuters article has already been repeated on several news websites: CNBC, Forbes, USA Today, ForexPros. Repetition does not make it any more true.
