Dr. Doom Roubini Suggests a New Term: Stag-Deflation

We've all heard of the term Stagflation and there is more than one analyst wondering about inflation due to global governments printing money, Roubini is sounding more alarm bells on deflation.

Should we thus worry about US and global stagflation? This note will argue that such worries are not warranted as a US hard landing followed by a global economic slowdown represents a negative global demand shock that will lead to lower global growth and lower global inflation. To get stagflation one needs a large negative global supply-side shock that, as argued below, is not likely to occur in the near future. Thus the coming US recession and global economic slowdown will be accompanied by a reduction – rather than an increase – in inflationary pressures. As in 2001-2003 inflation may become the last of the worries of the Fed and one may actually start hearing again concerns about global deflation rather than inflation

He has a new term, Stag-Deflation

He has 4 reasons: a drop in aggregate demand, a drop in wages (yet again?), due to being flat broke, the US will no longer buy up cheap plastic crap from China and this demand will resonate around the globe through trade balances and currency exchanges and finally, the slowdown will reduce demand in commodities, specifically energy.

He also mentions the Fed needs to worry about dollar fluctuations as implied by a possible currency crisis

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Oh, come on. We are moving

Oh, come on. We are moving towards hyper-inflation. Because the fed keeps printing more and more money. At least that's how it looks to me.

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Deflation usually happens first

For example, even with Weimar Germany there was a deflationary episode first:

Germany was reduced to economic chaos after the armistice. In 1920, prices plummeted around the world in a great deflation. This price and wage deflation was reinforced by the economic policies of conservative governments. Germany's new Weimar Republic inherited the vast burden of debt and the crushing weight of reparations. Add in the fact that tax revenues were low due to the weak economy, while the outflow of payments in gold-fueled inflation.

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