IN THIS ISSUE:

1. Inflation or Deflation? Some Believe It Could Be Both

2. How Deflation Can Affect the Economy in Negative Ways

3. Bankruptcies & Liquidations Rising – But a Little Good News

Overview

With government spending clearly out of control and a budget deficit expected to top $4 trillion this year alone, more and more forecasters are warning that inflation is going to soar later this year and next.

On the other hand, with the economy imploding and the unemployment rate exploding at a never before seen pace, other forecasters believe we are heading into a deflationary spiral which will further cripple businesses and consumers.

There are even some who believe we’ll see both – inflation and deflation in the next couple of years. Given all this uncertainty and the seriousness of the prospects, I will address the inflation/deflation debate today. I hope you find it helpful.

Following that discussion, I will revisit the issue of widespread bankruptcies among US small businesses, which is increasingly spreading to medium and large corporations, including some big names. While bankruptcies and permanent closures will continue to increase just ahead (especially when we get the numbers for April), there is some good news on this front that I will share near the end of today’s letter.

Before I get into all that, I’m sure you heard the US unemployment rate soared to 14.7% in April, the largest monthly jump on record and to the highest level since the Great Depression. Over 20 million jobs were lost in April alone, also the largest ever. The only good news was the increase to 14.7% was below the pre-report consensus for a rise to 16%. While the April jobs number was not quite as bad as expected, the May number is expected to be even worse.

Now let’s get on to our main topic, which will cause today’s letter to run a bit longer than usual.

Inflation or Deflation? Some Believe It Could Be Both

With so many historic, unprecedented things occurring these days, its next to impossible to know what will happen going forward. On the one hand, we have the federal government borrowing and spending trillions and trillions of dollars we don’t have trying to resuscitate the worst economy since the Great Depression.