David Rosenberg’s Latest on the Money Supply, Deflation

The deflation camp may not be well populated, but I have to say that I really dig the few economists and analysts that are sympathetic to the deflation argument.  Perhaps it’s just because we all smoke the same lettuce – but I prefer to think there’s more to it than that 🙂

One of our favorite “deflation boys” is David Rosenberg.  Often quoted in the mainstream press, here’s what David had to say yesterday about the coming inflationary holocaust – or lack thereof:

If you haven’t noticed, real M2 is down year-over-year for the first time in 15 years. A reconstituted real M3 is deflating now year-over-year for the first time in 50 years. Wake us up in 2015 when the inflation comes.

Big hat tip to stellar EWI analyst Pete Kendall for the lead on Rosie’s quote.

I couldn’t agree more.  It’s not that us deflationists don’t believe inflation can ever happen again.  We just don’t believe it can happen in the next 2, 3, maybe even 5 years.

Why?  Because most of the debt outstanding today is likely to go unpaid.  We live in a credit based system.  And there’s over $50 trillion in credit outstanding – most of which has little hope of ever being paid back (sovereign debt anyone)?

So as long as credit is collapsing – which is still appears to be – I personally just can’t dig the inflation arguments.  (And when you see the Wall Street Journal touting gold as a one way bet, it’s usually best to take the other side of the trade!)

And consumer credit indeed continues to collapse.

Only after credit completely collapses can we then see inflation.  That’s still my story on inflation/deflation until we see something different – and I’m sticking to it…at least until we see data to refute the deflation hypothesis.

For more recommended reading on the deflation argument, please check out our recent piece: Are Deflation Arguments Still On Track? as we recheck our assumptions.