Clarion Content

Worrying signs of deflation are starting to appear in the American economy. The asset bubbles that inflated under Presidents Clinton and Bush have burst. The huge government surpluses of the Clinton era have been squandered on failed foreign adventures and massive tax breaks for the ultra-rich. Now a far darker spectre has appeared on the horizon, not just double digit unemployment, not inflation, not even stagflation, but deflation---a condition America hasn't faced since the Great Depression. We had best all hope that Japan's Lost Decade is not the path America faces.

The two most recent worrying signs of deflation to the Clarion Content's way of thinking were that: one United States import and export prices both fell for the fifth consecutive month in December and two retail sales fell for the sixth straight month in December, the longest consecutive stretch of monthly declines in at least four decades. Prices are dropping on United States' products both inside and outside the country. American consumers, the people who King George II told after September 11th to "Go out and spend," are tapped out. Trapped by credit card debt, the dropping value of their homes, tumbling 401Ks and stock market portfolios, they have no flexibility to keep spending. The worry is that their retrenchment will become a self-verifying vicious cycle.

Labels: Economy