Are we experiencing inflation or deflation?

When crude oil goes through the roof, Gold stagnates and economy in many countries are helpless, you may be wondering what is really happening – are we experiencing inflation or deflation?

The answer lies in a cause and effect syndrome. The world is really under some sort of slow deflation. US and other Western countries are experiencing a labor force restructuring. People who used to make six figures in Fortune 500 companies are losing their job and starting a small business or taking a huge pay cut to do something else. This deflation in turn is slowing the US and other Western economies and that is manifested by lower and lower bond yields worldwide for the last twenty years. The Corporations in US have difficulty in gaining pricing power. Hence they have to cut cost. That in turn is shipping jobs to India and China. That is creating more deflation in US and other Western economies.

Now in India and China though things are little different. Newly acquired imported jobs are providing a bonanza of cash in the hands of a few. These few in India and China can be millions because of general population size. Now these techies in India and factory workers in China are buying cars and other essentials to fulfill their American dreams.
As a result number of cars in India and China for example is quadrupling every year. Now guess why crude oil price is going up!

As Crude oil price is going up, this is further causing slowing down of US and other Western economies. That in turn is causing more deflation! And that is causing more export of jobs to India and China.

So what is this? This is the new global economy. Expansion and inflation in one part of the world and deflation on the other part.

So what will happen finally? That really depends upon which economies are in the driver seat. It is obvious that still the US economy is driving the whole world. If that is the case sooner or later, deflation in US will take over. For example, Microsoft may decide to ship a lot of jobs to India and save some money to fight deflation. Unless basic business model or cycle change, Microsoft will eventually go to their Indian counterpart and ask them to reduce cost of service. Walmart for example is already pressing the Chinese to cut cost to make them competitive in US. Bow India and China also start facing delation.

Like business cycles, this phenomenon may eventually reverse.