Capacity utilization – deflation strutting its stuff

And here is proof that the effect of inflation is to pull forward and compress in time demand and production. If you look at the overall trend over the past forty years, you will notice that despite the fact that the trend traces out a sinusoidal wave, the overall trend is from the top left to the bottom right; ergo, down.

In a deflationary context, declining industrial capacity utilization reinforces deflationary pressures. That is because as asset values decline, new industrial capacity is still coming online thus feeding the decline in asset values.

Also a good read from Mike Shedlock


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