Sunday , 23 June 2024

Ian Campbell's Commentary: What's Coming – a "Slight Depression" (Niall Ferguson) or "A Form of Stagflation"?

Harvard Professor/Economic Historian Niall Ferguson wrote recently that he is of the opinion that, while all the fiscal and monetary government stimuli undertaken by many of the governments of the world’s developed countries since 2007 may have averted a second Great Depression, they will, most likely, still experience a “slight” depression. Campbell reviews the rationale behind Ferguson’s position and then presents his view that, as he sees it, most developed countries will face, instead, “a form of” Stagflation where the prices of non-durable goods (food, energy, and basic consumables) inflate, but the price of durable goods (long-term assets such as houses, cars, refrigerators, etc.) deflate. Campbell’s commentary makes for a very thought-provoking read. Words: 922

Ian R. Campbell, FCA, FCBV ( the following comments in his Today’s Economic & Resource Stocks Commentary* which Lorimer Wilson, editor of (Your Key to Making Money!), has further edited ([  ]), abridged (…) and reformatted below  for the sake of clarity and brevity to ensure a fast and easy read. The author’s views and conclusions are unaltered and no personal comments have been included so as to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.[Campbell’s commentary emanates from an article by Mike Dolan in the Financial Post entitled ‘Permafunk, Japanization, Long Depression: Which is This?’ in which he presents and comments] on views expressed by… Ferguson that:

  • the fiscal and monetary developed country government stimuli (read the U.S. in particular) after 2007 has had modest impact, but that said stimuli may have averted a second ‘Great Depression’ but not a depression per se;
  • today is not the 1930’s because (1) China has emerged as the world’s second largest economy, (2) globalization has not broken down into protectionism, and (3) during the recent ‘developed country’ economic downturn “the era’s rapid technological revolution has not skipped a beat”; and,
  • what the world most likely faces is a “slight depression”, and not a ‘Great Depression’.

The article says that anecdotal rules of thumb suggest ‘depression’ to be a circumstance where a peak to trough drop in a country’s… real GDP… is more than 10%, or where a recession lasts more than 3 years. By way of a reference point, the article says that in the 18 month U.S….recession of 2008/2009 U.S. real GDP dropped 5%.

…My sense of [Ferguson] is that he didn’t get to be a Harvard professor by being stupid, and he certainly is articulate. Like everyone I ‘follow’, I [reflect on their] observations and opinions and weigh them in my own thinking [and] in Ferguson’s case, I listen and think harder than I do in the case of some others. That said, my comments on the foregoing are as follows:

  • whether in the developed countries going forward we face hyperinflation, inflation, recession, stagflation, or depression…I am less interested in Ferguson’s statement that ‘globalization has not broken down into protectionism’…than I am in knowing his views on whether protectionism is about to erupt in spades in the United States in particular. I dealt with this in my e-mail on Tuesday under the headings ‘Global Trade War’…and ‘More On Trade – Gloves Coming Off’…;
  • I am not sure what Ferguson infers from “rapid technological revolution not skipping a beat” [but] to me continued rapid technological revolution leads to ever more capital intensive manufacturing processes which employ less people. A continuing mantra of mine is that ‘service businesses typically to not add durable value goods to an economy’ in the way durable goods manufacturing businesses do. Combine that view of mine with…[the fact that we now have a world population of 7 billion compared to only 1.4 billion in the largely agrarian world of 1870 and] then work to convince me that world events…of 1870,…which the referenced article refers to a period of ‘long recession’, and the 1930’s ‘Great Depression’ period (when the world population was about 2 billion…) can be used as benchmarks to intelligently discuss today’s world in economic terms. Trust me, that would be a ‘hard sell’ for me to be convinced; and,
  • at the end of the day, like everyone else, I am forced to ‘make bets’ based on my own ‘consensus thinking’. My current view is that what most of the developed countries will face going forward is a form of Stagflation,…where the prices of non-durable goods (food, energy, and basic consumables) inflate, but the price of durable goods (long-term assets such as houses, cars, refrigerators, etc.) deflate. Contextually, ‘stagflation’ describes an economic environment where the inflation rate is high, and the economic growth rate is low’ or, alternately, ‘a period when an economy is stagnant while inflation is rising’. Hence I say that what I think we will face in developed countries is a ‘form of’ Stagflation, as contrasted with simply adopting the word ‘Stagflation’.

I have discussed Stagflation previously in these commentaries – for example see ‘Inflation – Stagflation?‘ (April 25, 2011) – reading time 4 minutes, and ‘Inflation or Stagflation?‘ (April 13, 2011) – reading time 1 minute. I have read and reviewed a lot of ‘stuff’ since April 25, and so far nothing has altered my view as to where we, in the developed countries, are headed. You might want to visit my prior commentaries and think about whether you agree or disagree with me.

I think all of the foregoing is worth your time to think hard about, and then reach your own conclusions. I urge you to increasingly think about what people say, and then determine if what they say makes sense to you – as contrasted with thinking about what others say about the people that say things.


Ian R. Campbell About Ian R. CampbellIan R. Campbell, FCA, FCBV, is a recognized Canadian business valuation authority who shares his perspective about the economy, mining and the oil & gas industry on each trading day. Ian is also the founder of Stock Research Portal, which provides stock market data, analysis and research on over 1,600 Mining, Oil and Gas Companies listed on the Toronto and Venture Exchanges. Ian can be contacted at [email protected]


Other Commentary by Campbell:

1. Campbell’s Commentary: Canada’s Many Economic Advantages Make it #1 – Here’s Why 

Canada’s  size, political structure and culture will enable it to – properly governed – be more resilient to worldeconomic problems than any other developed country. [For one thing] we don’t have the extent of political polarization that… [is currently the case] in Washington…and now exacerbated to new levels in these difficult economic times – and that will, in my view, cause the U.S. to continue down an increasingly rocky economic road. [Below I put forth Canada’s economic advantages and disadvantages.] Words: 1026

2. Ian Campbell’s Commentary: More on Gold!

I read an article yesterday about the price of physical gold…that I think is worth bringing to your attention [not only because of what was conveyed but who was the source of the comments made and the great credibility of those comments given his] immediate access… to people he knows in high-level positions [and] can, and no doubt does, interact and share views with on a daily basis. [Let me explain more fully.] Words: 840

Is physical gold the best available ‘safe-haven’ or is it the U.S. dollar – or perhaps even U.S. Treasuries? Words: 793