These are superficial musings.
(1) We've seen substantial asset deflation thusfar in this crisis, but very little consumer price deflation (we have seen a substantial deceleration in consumer price inflation, but not consumer price deflation).
(2) There is a chance we may enter into consumer price deflation. There is substantial productive overcapacity in the US and overseas, which could lead to a second wave of flow-on effects (more firings and competitive price declines...to cover fixed costs), all of which could feed upon itself in a self-reinforcing downward spiral, accentuated by global competition (pseudo protectionism).
(3) I think we have seen the first wave of this crisis, and we are now at a juncture where we are waiting and seeing if there are second order flow-on effects coming through the system. We could be in a period of the "lull before the storm."
(4) If a second wave arrives and we enter into a period of consumer price deflation, then the market is going to take a bath again.
(5) The market is currently rallying on the premise that we will avoid consumer price deflation and the consequent debt deflation of Irving Fisher fame.
Holding my breath! You should hold yours also.
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