Deflation

http://www.businessweek.com/articles/2012-06-05/five-charts-that-show-deflation-is-a-growing-threat

***************
"There ain't no rules around here. We're trying to accomplish something." (Thomas Edison, Inventor)
***************

So, three years after the U.S. recession technically ended (June, 2009), there's still the threat of deflation. The consumer price index rose zero percent in April from March because falling energy prices made up for any other rising prices.

According to Peter Coy (article attached), "With slow growth and [weak] job creation, there's a risk...that the general price level will actually start to fall, as it did for several months at the end of 2008 in the teeth of the financial crisis. Deflation is good for shoppers but it's terrible for people who owe money because their incomes shrink while their debts don't. It's also bad for workers because it's a sign of economic weakness, pay cuts, and layoffs."

I like what Coy has done with his "5 Charts" depicting the deflationary forces at work. The first is crude oil price per barrel: dramatic and it's showing up at the pump. Number 2 is the "Commodity Price Index" which tracks 22 basic commodities (butter, steel scrap, rubber, sugar, corn, etc.), is down 7% since March 1.

The third deflationary chart is the "output gap" which traces the difference between what the economy is able to produce "...if it's running at top manageable speed and what it's actually producing." According to the CBO (Congressional Budget Office - an organization that has no political axe to grind), the output gap is around 5.5% of GDP. Obviously, excess capacity, at whatever level, puts downward pressure on the price of labor and equipment.

The fourth chart "10 Year Treasury Yield" ("...canaries in the inflation coal mine..."), has fallen to 1.5%. That's the lowest in the last 50 years.

The fifth chart (Number employed at all levels of government) shows government employment falling. This chart shows all levels of government employment actually falling 2.7% since June 2009, really offsetting some of the growth the private sector has managed to show during that period.

Not surprisingly, it was reported this week that both Paul Krugman and Larry Summers were advocating for more "stimulus" in the face of weak economic growth indicators. Krugman has been consistent about this since the original stimulus happened: he said it wasn't enough then and now he sees that being proven out. Summers was there as the original (President) Obama economic "czar" so, in his case, whatever he advocated then, he's saying now was not enough. Of course, this is the same Larry Summers who was defrocked as president of Harvard and carped about "...no adults being in charge..." while still working for (President) Obama as the economic czar.

So, "deflation," we'll see.