Gary Shilling: U.S. Faces Deflation

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During the past two years, the U.S. Federal Reserve has been trying to ward off deflation. But now, Gary Shilling, president of A. Gary Shilling & Co and a well-known market bear, says in a video interview that the efforts have not worked and that the U.S. economy is entering a deflationary stage. Shilling says we should expect to have 2% to 3% annual rates of deflation per year for the next decade.

He could be right. Earlier this month, the consumer price index, which measures inflation, dropped by 0.1% in June following a 0.2% fall in May and a 0.1% fall in April. Shilling says that 53% of the components of the index, by weight, showed price declines on a year-over-year basis. That, combined with the country's massive government debt and consumer debt, makes the chances of deflation seem more likely and suggest that the Fed's efforts have not completely succeeded.