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.
Longevity risk is clearly a huge growth market. One has to wonder, though, where the capacity to address this market opportunity will come from.
Submitted by tom on
A couple of articles in this week's issue of Barrons discuss the possibility of deflation.
An interesting question and a rather extreme scenario I suppose.
As you indicate, the currency can suffer quite a bit of damage through either inflation or deflation.
I am not sure, however, how the contractual obligations would be affected in an insurance or annuity contract if the currency were replaced.
Submitted by Anonymous on
There seems to be quite a bit of concern about inflation, and lots of discussion about how inflation impacts annuities and other financial services products.
I do not see as much discussion of deflation.
I believe that there is a real possibility of continued and prolonged deflation.
How are annuities impacted by deflation?
Interest rates are the raw material used in manufacturing annuities. Rates are currently very low--the 10 year treasury note is hovering around 3.4 percent and 30 year...
