Friday, August 17, 2012

More on Inflation/Deflation

I noticed a small article in this morning's WSJ Market Watch newsletter that the Japanese government is preparing to present a report projecting that the deflationary spiral its been struggling with since 1990 is ending and data suggests that inflation will be manifesting itself in the Japanese economy in 2013.

It must be remembered that Japan was the first major economy in the post WWII era to fall into the deflationary trap.  The 1980's were noteworthy for their global disinflationary pressures although human myopia, due to the inexorable rise of inflation since the end of WWII but particularly during the Vietnam era, was incapable of believing that the global economy could have no other climate than an inflationary one. 

I'm not claiming prescience when I say this but I recognized at the time that if the then world's second largest economy was caught in the throes of deflation this was only going to transmit those same pressures to the rest of the planet. 

Well, it took another decade but the Asian Currency crisis in 1997 and the failure of Long Term Capital Management hedge fund in 1998 were the warning signs of the eventual deflationary pressures the dot.com bubble/bust at the turn of the last decade wrought.

Why am I rambling on about all this?  While I concede that there are still massive deflationary pressures lurking in the current global economy, especially emanating out of the Euro zone, if the Japanese government's report is accurate and the Japanese economy has finally licked the deflationary morass with which it's been struggling, it may be the precursor to a turn in a macro economic cycle, just as it was in 1990.  As Japan heralded the coming of global deflation in 1990 so it may be heralding a return to global inflation ...