Jeremy Grantham Says Writing off $20 Trillion of Net Worth will Change Your World

By on December 5, 2008

A recent USA Today article covers the prospects for deflation. It’s not pretty. Some points from the piece:

“Nouriel Roubini of New York University predicts that what he calls “stag-deflation” — a recession combined with deflationary forces — will be a big concern in the coming months, here and abroad. Roubini, whose gloomy predictions have mainly come true, thinks that the collapse of the debt markets will lead to increased defaults — and that, in turn, will feed deflation as companies frantically sell assets at any price to try to remain afloat. ”

Already, prices are cracking nationwide:

•Oil is down about 70% from its 2008 high to $46.96 a barrel.
•Wheat is down about 60% from its 2008 high.
•Home prices are down 21% from 2006 highs.

“The global economy gives a good impression of having run at top speed into a brick wall,” says Jeremy Grantham, chairman at Grantham Mayo Van Otterloo, an institutional money manager.
“I defy anyone to find anyone who isn’t cutting back. They are all deep into ways to be frugal.”
Grantham thinks that “we could have something reminiscent, in some respects, to the Japanese situation” that began in the early 1990s and continued well into this decade — a long, low-grade deflationary recession.”

“Jeremy Siegel, professor of finance at the Wharton School of the University of Pennsylvania, says he thinks the country will avoid deflation, primarily because of all the money the Federal Reserve and the Treasury have been pumping into the market.”

There is a lot more in the article located at:

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