Deflation: Why it's coming, whether it's good or bad, and how it will affect your investments, business, and personal affairs (Paperback)

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Product Description

Although all eyes have been on Southeast Asia since October, it's not the only game around. A broader look shows that the financial crisis in that part of the world is to global deflation what the 1973 oil embargo was to inflation: it focuses and augments the many forces already at work. For the last two decades, governments, corporations, and new technologies have promoted actions that, given certain triggers, will push prices down.

In his comprehensive new book, Deflation, A. Gary Shilling points out the deflationary forces at work in the world, analyzes the impact of the Asian financial crisis, and predicts the kind of deflation that will likely result.

Governments, for example, have done their part by reducing spending and shrinking deficits. With the Cold War over, US defense spending keeps falling dropping from 7.4% of GDP in the third quarter of 1986 to 4% in the first quarter of 1998. Continental governments endure double- digit unemployment rates to move toward the Maastricht target, deficits no more than 3% of GDP. Deregulation among utilities and services is also lowering prices. In the US, Citizens for a Sound Economy, a Republican think-tank, predicts that deregulation of the electricity market would lead to a drop of "at least 43%" in consumers' electricity bills.

Meanwhile, central banks are still fighting the last war, inflation, with higher interest rates. Corporations are adding to deflation momentum with the restructuring that started in the US and UK in the 1980s and has spread to other English-speaking lands. Global outsourcing now provides not only less expensive goods but also cheaper services, including credit card processing and computer programming. Computer and information technology has deflation written all over it. Hardware and software are notoriously prone to price cuts, and users buy the stuff to reduce their own costs.

Outside the US, newly industrialized countries as well as countries recently freed from Communism are becoming major players in the export market. The result is a global glut of products and no one to buy them. With Southeast Asia's financial woes, its consumers are not much of a market, and the US the world's happy dumping ground can only buy so much. Faced with increasing global glut, countries wanting to use exports to improve their economies are more likely than ever to devalue their currencies. No doubt a strengthening dollar is deflationary to the US, and no doubt it is currently welcomed by Washington. But what happens as global glut and weak US exports meet rising labor costs, spurred by the drum-tight US labor market, head on? What happens if a profit squeeze kills overpriced US stocks, and individual investors who rely on their equity portfolios as their savings accounts suffer big losses?

Consumers retrench. Then they watch prices fall, and in a classic move that makes deflation a self-feeding phenomenon, they wait for prices to go even lower before spending a dime.

If, by some slim chance, the Asian crisis proves to be a nonevent for the US, the Federal Reserve will no doubt tighten credit and probably precipitate a recession, preceded, as usual, by a bear market in US stocks. The net effect on consumer behavior would be the same, and as with the case of an Asian-initiated bear market, the end result would be deflation.

When we in the US think of deflation, we think of the 1930s. Its images of soup lines and shanty towns are so vivid that any other idea of deflation pales by comparison. But there was deflation after the Civil War without the financial collapse of the '30s. The deflation Dr. Shilling forecasts coming soon is more likely to be characterized by the oversupply of the late 19th century than the unemployment of the Depression.

The final chapters of Deflation explain how deflation will affect you. Should you keep your stock investments or switch to bonds? Will your company need to be restructured again? What should you do about inventories? Have you personally been saving enough? Dr. Shilling gives you 13 investment strategies, 18 business strategies, and five personal strategies that will work in the deflationary years ahead.

Be prepared. In future years we may conclude that in the summer of 1997, Asia was the trigger for global deflation.

From the Back Cover

How will the coming deflation affect you? What strategies will work in the deflation years ahead? Look inside for Investment Strategy for Deflation 13 Elements Business Strategy for Deflation 18 Elements Personal Strategy for Deflation 5 Elements 269 Easy-to-Read Tables and Graphs

"Gary Shilling was the first to understand the unwinding of inflation. Now he explores the prospects for deflation, and how investors can profit from it. I think he's right on. You should read it." Ed Hyman, Chairman ISI Group "Take a deep breath before you sit down with Deflation. I can almost guarantee that you'll find it a shocker." Richard Russell, Editor Dow Theory Letters "The arguments Dr. Shilling puts forth are well made, cogently argued, pleasantly written and most importantly of all, correct. In the words of Siskel and Ebert, we give Dr. Shilling's new book an enthusiastic two thumbs up!" Dennis Gartman, Editor/Publisher The Gartman Letter "The beauty of this book is that it explains how we investors who are well positioned can reap huge gains from the coming deflation." Marc Faber, Author & Publisher The Gloom, Boom & Doom Report

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Product Details

• Paperback: 400 pages
• Publisher: Lake View Publishing; 1 edition (June 1, 1998)
• Language: English
• ISBN-10: 0961856246
• ISBN-13: 978-0961856243
• Product Dimensions: 8 x 5.2 x 1 inches
• Shipping Weight: 8 ounces
• Average Customer Review: 3.7 out of 5 stars  See all reviews (10 customer reviews)
• Amazon.com Sales Rank: #759,092 in Books (See Bestsellers in Books)

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Customer Reviews

Most Helpful Customer Reviews

12 of 12 people found the following review helpful:

4.0 out of 5 stars Informed & rational summary of a plausible scenario., January 29, 1999

By	[e-mail] (Ireland) - See all my reviews

Shilling predicts good - rather than bad deflation (at least for the USA): i.e. surging demand absorbing excess supply because of price falls. It is a US-centric view - weaker on the international side. Deflation addresses an important & neglected subject. The slow start is tolerable because of good, up-to-date graphs and data generally. Happily he is consultant-clear rather than economist-arcane. His analysis of the US economy is compelling & useful for foreign readers. Nonetheless, there are questions: will policymakers (including central bankers) not adjust; e.g. I understand that defense spending has started rising again. Shilling's review of factors such as the internet is useful. The foreign material is poorer - though his Asian chapters are good. Bizarrely for such a serious & scholarly work, there is no index.

Shilling is worth reading - he thinks the west will experience `good' rather than `bad' deflation - but how deep will the Deflation be and how long will it last? He could have usefully studied natural resources in more depth; after all, this is where deflation hit hardest and earliest. I will read him again.

5 of 5 people found the following review helpful:

4.0 out of 5 stars Outstanding Book, October 7, 1998

By A Customer

This book might better be called "Shilling on Deflation" -it rivals the mega best-seller "Bogle on Mutual Funds." You might buy it just for the incredible historical charts and facts which are unavailable elsewhere.

One thing it lacks, however, is a concise argument why we would encounter mild deflation without being on the gold standard - which historically has caused mild deflation for decades in the 1800's and early 20th century. I do not see how the U.S. consumer is going to suddenly turn into a japanese-like saving machine, on Alan Greenspan's watch, unless Greenspan screws up very badly.

Nevertheless, this is the guy who published in 1983, "Is inflation ending? Are you ready?" - ignore him at your own peril! His investment and saving strategies also justify the purchase price of the book.

3 of 3 people found the following review helpful:

3.0 out of 5 stars A compelling reason to believe that inflation is dead., October 15, 1998

By A Customer

Loaded with charts to support his thesis, Shilling provides compelling evidence that inflation is dead, at least for the next 5 years. He cites China's need to export to grow, a competitive force unlike anything we have faced before. He also is convincing in his argument that a global economy means downward pressure on prices here and abroad. My suggestion is to read the last chapter first, so that the data takes on even more significance as the reader plows through it. All in all, a good explanation of macro economics from a not too esoteric economist.