Debunking the Deflationary Spiral

By iamned - Last updated: Thursday, May 7, 2009 - Save & Share - 2 Comments

Another great day for the stock market. It’s not an easy job being right all the time, but someone’s gotta do it. Yesterday, Brian McMorris wrote an article on Seeking Alpha where he purports that we’re in a so called ‘deflationary spiral’. He writes

Deflationary spirals are self-feeding and there is little to stop them. People will spend less and less first through fear, and later because they are unemployed and have nothing left to spend. Unfortunately for this country, we just elected a president who does not get this (not that the previous one did either). Raising taxes into a depression is a very bad idea.

This is wrong.

Surging commodity and gas prices is further evidence the deflationary spiral is bunk. The graphs below show how gas prices, wheat, soy beans, oil, and core prices and corn have all risen in lockstep-just like they did in the 2002-2007 bull market. This is not only bullish for stocks like MOT POT and IPI, but the entire economy and stock market as a whole because inflation is a byproduct of economic growth.

Core prices have remained stable for the past few years, and have recently ticked higher.


Grain and Oil prices also rising in lockstep. No signs of a deflationary spiral because prices have stabalized.


On the other side of the spectrum you have casandras predicting hyperinflation due to quantitative easing, which I will debunk at a later time. Making unsubstanciated, rash claims such as ‘deflationary spiral’ doesn’t lend to ones credibility, and should be avoided by seeking alpha authors.

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2 Responses to “Debunking the Deflationary Spiral”

Comment from Lee Lucas
Time May 7, 2009 at 5:59 pm

Lets see, in the last 6 months the stock market deflated, housing prices defalted, comodities deflated, consumer prices deflated. auto prices deflated, GDP deflated, the world economy, by any measure, deflated, consumer confidence deflated… yeah,theres no deflation going on….Perhaps Bernanke etal are wrong to be “re-inflating” things to avoid a worse fate, since theres really no deflation, just ask you. If theres no deflation, why are you championing bailouts? Whats to bail out if theres been no economic “deflation”….Just wondering

Comment from Administrator
Time May 15, 2009 at 7:02 pm

The purpose of the bailouts is to bolster investor & business confidences so market goes up. We were on the precipice of deflation, but it’s been averted.

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