Yesterday, USA Today’s Barbara Hagenbaugh, Sue Kirchhoff, and John Waggoner talked about the prospect of deflation for the United States. Legendary investor Jeremy Grantham was one of those they approached about the subject. They wrote:

“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.

One reason: U.S. investors in stocks and bonds may have to write off $20 trillion, he says.

“When you write off that much of your net worth,” Grantham says, “it changes your world.”

Source:

“Deflation: Bargains abound, which could be a problem”
Barbara Hagenbaugh, Sue Kirchhoff, and John Waggoner
USA Today, December 2, 2008

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