Deflation at the Gate

"Let's call this NFL game balls for dummies.  Oh, don't take offense. Up until a few days ago, when the Deflategate "scandal" broke, we were all dummies when it came to the esoterica of NFL ball rules. Hell, let's be honest; we were imbeciles.  Now, we're learning all sorts of fancy things about the league's regulations and how teams and referees handle footballs before and during a game. For instance, did you know the ball must be a "prolate spheroid"? And did you know that before today, the term "prolate spheroid" had appeared on CNN.com only four times in its history? - Blog posted by Eliott McLaughlin of CNN

It seems that we finally have Deflategate in the rear view mirror.  Despite the scandal the Patriots retained their crown so in all honesty it was once again a media frenzy that resulted in nothing.  So with nothing but blue skies ahead of the NFL I thought I would turn to the actual Deflategate issue that is front and center; "Deflation at the Gate."  

Not a day goes by without some talk about raising interest rates so I thought I would do a review of the global markets to get a sense of what is happening in the world.  My data points to something far from an increase in interest rates in the near future.  Rather it shows alarming signs of a potential global deflationary spiral.  Reviewing data from the Economist magazine shows that of the 41 countries listed in their economic indicators page, 12 or almost 30% have printed a negative number in the inflation column (this includes the United States).  A total of 19 or nearly 50% of all major economies in the globe have inflation running below 0.5%.  This is hardly the type of market where interest rates should start to climb!  Looking at the countries with double digit inflation and you have only 3, Russia, Venezuela and Egypt; none of these are world economic leaders and all have serious structural economic issues that will not vanish overnight.

Taking a look at interest rates and specifically each country's 10-year note and using the United States as the benchmark for risk free debt shows 20 of the 38 countries that have data with interest rates below the United States' 2.24% rate.  So more than 50% of the globe have rates lower than the United States and most of them have far worse economic problems than the United States.  No wonder the dollar is gaining strength almost daily!  Should the United States raise interest rates the dollar would explode higher and growth would dive even more dramatically than it is currently.  Furthermore with oil and most raw materials priced in dollars, prices would fall precipitously across the board driving prices even lower and causing a global deflationary spiral.

So I took the liberty to research the last time the globe as a unit was gripped by deflation and not surprisingly there has not been a time in history where all major economies have simultaneously struggled with deflation.  A lot of countries have had spates with the issue but never globally.  The data certainly shows me that global deflation is more than a vague probability but could very easily take hold.  Raising interest rates at this stage in the game might be the catalyst to cause the global outbreak and while I am no Federal Reserve fan I have to believe that even they have worked this one out.  As such I think that this talk is just that and the reality is low interest rates are here for at least the next twelve to 24 months.