In contrast to inflation, deflation is that rare economic condition when prices of goods and services fall due a lack of demand. The last time large scale deflation occurred was when the U.S. economy practically came to a halt during the Great Depression in the 1930s. There can be a domino effect from falling prices – factories shut down because of declining profits, more and more people are laid off, household incomes shrink, and companies and individuals default on their loans. In a more recent example, falling housing prices have put pressure on many homeowners--forcing them into distressed sales which creates even further downward pressure on property prices and other asset values.

Demography and Deflation

Japan’s experience over the past 20 years provides solid support for those who believe that there is a causal link between demographics and...

Annuities in Japan

The Japanese...

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Pimco Bearish on the Prospect of Long Term Deflation

Pacific Investment Management Company (Pimco)--the large asset manager headed by Bill Gross--has taken a position that reflects skepticism of the possibility of long-term deflation in the United States. During the first half of 2010, Pimco entered into derivative contracts with a notional value of $8.1 billion.
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Retail Investors Moving Money into Bond Funds at Record Pace

Over the past several years, retail investors in the United States have been moving their money into bond funds at a pace not seen in 23 years. The movement of money into fixed income funds by individual investors has outpaced contributions into equity funds for 30 straight months.
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Deflation Concerns Gaining Traction as Economy Stalls

The consumer price index has fallen for two consecutive months: 0.2 percent in May and 0.1 percent in June. The unemployment rate in the United States remains at a persistent 9.5 percent, and in July the U.S. shed 131,000 jobs. Not exactly the type of news that supports a strong recovery or growth story. As discussed in a recent Wall Street Journal article , some large and very prominent investors are conditioning their investors and structuring their portfolios for deflation. PIMCO's Bill...