John Makin of Caxton Associates and the American Enterprise Institute spoke with CNBC this morning about the threat of deflation now hanging over the U.S. economy.
Makin explains that deflation is already here. He talks about how CPI is only at 0.9% right now, and heading lower. That prices and wages in the U.S. are falling, and that we are now exporting deflation to Europe and Japan via a weakening dollar.
Housing is where this starts, and Makin thinks that the American public believes that house and car prices will be cheaper in the future. He also argues that, if we included housing prices in the CPI, we would already be in a deflationary period.
Bond yields are a key source of knowledge about where the economy is, and Makin points out that yes, bond yields falling on both short term and long term government debt makes clear that markets believe in the deflationary storyline.
He calls for more Fed action, and further experimental measures including the purchase of more treasuries.
Makin calls monetarists “wackos” for fearing inflation due to the increase of money supply.
It’s compelling viewing for anyone concerned about our coming Japan scenario.