Private credit is contracting in Europe and in the United States, writes business journalist Ambrose Evans-Pritchard.
Writing in U.K.’s The Daily Telegraph, Evans-Pritchard states that M3 money data is “flashing early warning signals of a deflation crisis next year” for nearly half of the world economy.
Emergency spending by governments in the U.K., the United States, and Germany have propped up economies, but now such spending support is being withdrawn, “gently or otherwise,” he notes.
“Private loans have fallen by €111 billion (about $111 billion) since January. Whether you see a credit crunch in Euroland depends where you sit. It is already garroting Spain. Germany's Mittelstand says it is a reality, even if not for big companies that issue bonds,” writes Evans-Pritchard.
“The Economy Ministry is drawing up plans for €250 billion (about $250 billion) in state credit, knowing firms will be unable to roll over debts.”
Evans-Pritchard said that the Bundesbank sees no crunch now, but fears a second wave of the crisis this winter, and there will be a rise in the insolvency of firms and of families.
Central banks will have to "monetize" deficits on a huge scale to prevent debt deflation.
“The longer they think otherwise, the worse it will be,” writes Evans-Pritchard. “We are moving into a phase when most OECD states must retrench to head off debt-compound traps.”
A report in Forbes magazine indicates that deflation is worsening even in Japan.
Prices there fell 2.2 percent in August from a year ago, mostly due to weaker consumer demand and less expensive oil and gasoline.
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