Deflation? Oh You Delusionary Boomers
David “Deflation” Rosenberg has been predicting short-term inflation followed by long-term deflation. In other words, he predicts boomers won’t be priced out of nice neighborhood restaurants. They won’t get priced out of getting a new car every three years. They won’t end up taking senior-discounted bus trips with the unwashed and poor.
The world will get back to competing for their dollars. Prices will fall again.
We are clearly in the midst of a supply constraint-led commodity boom, but we saw this in the 2002–07 cycle and again in the 2009–19 cycle and they do create hiccups, but not lasting inflationary effects.
Let’s start with commodity prices. Why would they fall or stabilize? Aren’t we running out of many commodities globally? Aren’t nations working to switch to more environmentally friendly energy production, which costs much more than fossil fuels (inflationary (correction, transition costs more)).
What about currencies as commodities. Massive debt loads devalue currencies and cause inflation — we have to remember that currencies aren’t on a gold standard.
But let’s assume the above doesn’t happen as Rosenberg says.
I believe there’s a bigger obstacle to deflation — the global resurgence of fascist and racial conflicts.
Putin’s regime couldn’t be any more clearer in putting Russia’s nationalist ambitions over the need of German factories to keep prices low.
Rosenberg doesn’t factor in Chinese toaster factories — the CCP no longer runs them for the export market.
The CCP is even nationalizing its tech industry through subtle coercion, pushing entrepreneurs into early retirement. Making it difficult for them to speak openly on Chinese social networks. As for foreign owned Chinese real estate debt? Screw that says the CCP.
China won’t be lowering the price on anything. As I write, 40% of China’s workers are under a Covid lockdown, what we’d call “house arrest”, or worse. Even China’s own CCP economists are pushing back.
I see parallels to the years leading up to WWII. Back then, the wealthy European elites couldn’t believe Germany would sacrifice its industrial economic interests for a collection of bizarre theories about race and destiny (how history repeats!).
They thought they could control nationalism, fascism, socialism and all the “isms” Eighty-million dead people later — they couldn’t. To this day I can’t figure out what the Spanish Civil War was about.
In the 1930s, movies depicted the old as wealthy and powerful. Young people were the stars of course, but they worked within a society where old people had all the money and power. Could anyone have predicted how that would change in the decades ahead?
In the 1960s, a generation after WWII, nothing was left of 1930s society.
Rosenberg’s main points are:
- No “Wage impulse” (economic demand)
- Technological advances, more efficient production
- An aging population that spends less
- Increased saving (instead of increases purchasing)
- Commodity and transportation costs are inflationary, but transitory
I’ll go through his points, one by one. I don’t see wage growth either. Does that matter? What significant improvements do you see in productivity? The days of innovate in the U.S. and manufacture cheaply in China are over.
Yes, companies look to move production to places like Vietnam, but the smaller countries don’t have the CCP running the sweat shops. Who looks at that ugly truth? China has run out of an excess of young people. They have their own middle class to keep happy. Vietnam isn’t far behind. India? Too disorganized.
An aging population spends less; this is his most powerful argument. Commodity inflation is probably transitory, like he says — agree — but we don’t buy commodities directly.
According to Rosenberg, everyone in the global supply chain, under the age of 50 is going to continue competing with each other to sell cheaper phones to boomers who (even he points out) don’t want another phone.
The world is at war and it isn’t going back in our lifetime. Will that mean inflation or deflation? Neither and both.
In the decade ahead, each country will institute rationing of whatever it has trouble producing or procuring. Boomers will not come out ahead. Deflation is their fantasy.
