S&P: On Deflation & Double Dip Risk at 25% Chance

The arguments and debates over deflation versus hyper-inflation continue.  The argument over real slow sluggish growth versus a double-dip recession also continues.  Standard & Poor’s has issued a report called “How Severe is the Threat of Deflation to the U.S.?” in a quest to determine how likely lower and lower prices are for the country and ultimately how likely the chances are for a double-dip recession.  The long and short is that even with 9.5% unemployment and other economic indicators being negative or cautious. S&P puts its Vegas odds on where there is only a 25% risk of a double-dip recession.

Part covers low CPI being under the comfort zone of the Fed, and going lower in CPI would pose a danger.  Other notions are a low savings rate, and further risks are declining home prices, an inability for banks to lend money, and a weak stock market.  Another risk is if Europe falls into the same boat, and it warns how Japan showed that it is very difficult to escape a “deflationary episode.”

24/7 Wall St. has debunked the myth of deflation.  A true double-dip recession is something we outlined about what it would look and feel like.  The current environment would have to get far worse for the economy to fall into a true double-dip recession when you compare how bad things were in 2008 and into 2009.

S&P and Moody’s both missed the whole credit bubble.  They threw around Triple-A ratings like they were water just because of implied insurance and assurance being there.  They have also been extremely late to the party when it comes to lowering the debt ratings of sovereign nations that are at-risk.

The notion that S&P is putting the risk at only 25% is not very comforting.

JON C. OGG