Former Merill Lynch Chief Economist David Rosenberg Sees Up to Decade of Deflation Ahead

When you have an investment bubble pop, it pops and starts to deflate. It is very naive to expect it to reflate in a quick turn around. The bubble whose burst we are going through now has been decades in the making, and it is only logical to expect that the bust will be just as massive.

Rosenberg: Up to Decade of Deflation Ahead

Most pundits who crow about green shoots and about an inventory restocking in the third quarter giving way towards some sustainable economic expansion live in the old paradigm, analyst David Rosenberg said.

They don’t realize that the deflationary aftershocks that follow a post-bubble credit collapse typically last for 5 to 10 years, Rosenberg told Bloomberg.

Rosenberg said a survey conducted by YouGov for the Economist magazine found that 5 percent of respondents had taken a furlough this year and 15 percent had accepted a pay cut.

Companies see this, which is why they are not just downsizing their payroll, but have also cut the workweek to a record low of 33.1 hours, Rosenberg said.

How we end up squeezing inflation out of the system when the labor market is clearly deflating wages and benefits for the 70 percent of the economy called the consumer is going to be interesting to watch, he said.

Rosenberg said theres up to another $5 trillion of household debt that has to be eliminated, a process that will require consumers to go on a semi-permanent spending diet.

According to a recent study by the Grant Thornton compensation and benefits consulting practice, 29 percent of employers have altered or intend to alter their 401(k) match this year, The New York Times reported.

Two-thirds of those will eliminate the match, at least temporarily, 22 percent will reduce it and 11 percent will bump it up.


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