Over the past two years, concern over global inflation has made news headlines in every developed economy around the world. But the opposite risk — deflation — can also devastate modern economies.
Straight Arrow News contributor Peter Zeihan is actually more concerned about deflation than inflation. Zeihan explains that while inflation can be self-regulating, deflation is self-reinforcing and much tougher to fix than inflation.
The following is an excerpt from Peter’s March 22 “Zeihan on Geopolitics” newsletter:
We’re all quite familiar with the concept of inflation, but inflation’s dark and twisted sister — deflation — doesn’t come out of her shell all that often. So, for our next episode of ‘Things I Worry About’ we’re talking about deflation.
Deflation is when prices drop due to low demand, which causes a downward economic spiral. Some examples of this are the Great Depression in the U.S. and Japan during the 90s. We’re now seeing mounting deflationary pressures in the Chinese economy that could have devastating consequences.
With some sectors exhibiting inflationary activity and others facing deflationary activity, there will be some complex challenges to overcome. When I find myself staring at the ceiling late at night, pondering the ‘flations, I often find that deflation is what really worries me…