As long as I can remember (which is only back about 40 years when it comes to the economy) the worry has been inflation. From the stagflation of the late 1970s, to Paul Volcker’s brutal but successful assault on inflation in the early 1980s, to the seemingly endless obsession about whether too much economic growth (remember that?) would lead to runaway inflation again.

There’s a possibility, in fact a strong possibility, that we’ve left that era behind. And that the next longterm worry will be about deflation–the drop in prices month after month that, as Japan has discovered, is so difficult to reverse and so destructive to everything from retirement savings to real estate prices to growth in the economy.

What’s moved deflation up the list of worries?

The collapse of oil prices.

There is the possibility that what we’re seeing if a one-off collapse (again) in oil prices caused by slowing global economic growth and a huge drop in global demand for oil.

But there’s good reason to think that what we’re seeing in the oil industry is, instead, a canary in the coal mine signaling similar problems to come in other parts of the global economy.

Think about the root causes of the oil industry collapse and the plunge in oil prices.

Yes, there’s no doubt that the global collapse in demand due to what I’ve been calling the coronavirus recession has played a huge role. You can’t cut 35 million barrels a day out of global demand for oil without crushing oil prices.

But there are longer term causes of the collapse that would seem to be applicable to much of the rest of the global economy.

Let’s take just one–the effect on supply of exceedingly low interest rates and exceedingly available capital at those low rate for an exceedingly long period of time.

With low interest rates, companies can borrow to increase capacity. And that’s a good thing for a while.

But as the U.S. oil shale sector shows if companies can borrow (borrow here includes debt and raising money in the stock market) to expand production and also to borrow to cover a lack of profits (let’s not be so crude as to call them losses) from these new investments and to borrow to continue to expand production in the hope of future profits, then companies are just about asking for a plunge in prices because of over production, an initial rush to produce more to cover interest payments (instead of cutting production that would bring prices back in line) and finally a structural collapse after production and prices have climbed so far out of equilibrium that the usual dimension of cuts and production adjustments isn’t enough to tackle the problem and clear the market. Saudi Arabia, Russia (and the rest of OPEC+), and oil producers from that include the United States, Canada, and Brazil have “agreed” (whatever that actually means) to cut production starting in May by as much as 15 million barrels a day. And oil analysts say that isn’t enough to rebalance supply and demand. The really big problem for the longer term–and for longterm deflationary trends in oil prices–is that producers who have their own budgets to balance and their own banks to please–may not be able to cut enough production to clear the markets. In which case we wind up with years and years when oil supply exceeds oil demand even when growth in the global economy bounces back from current depressed levels.

This scenario isn’t limited to the oil sector either.

Consider the global auto industry. Cheap financing for new plants (and the jobs that they bring to places like Kentucky and South Carolina) and government orders to build a national auto industry in China (once upon a time that was an ambition in countries that included India and Malaysia) have led to a situation where global supply exceeded global demand even before the coronavirus recession. In 2018, a very good year for global auto companies, producers sold 78.9 million vehicles, according to Statista. That was expected to mark a cyclical peak and, before the coronavirus recession, sales in 2019 were expected to drop to 80 million vehicles. Actual sales in 2019 were below that at 75 million vehicles.

And on the supply side? For 2018, remember that peak year with 78.9 million cars sold? Production that year was 97 million. In 2019 when sales slumped to 75 million cars, production was at 92 million vehicles.

All this before any coronavirus recession.

Now I assume that some of the production in these figures is actually production capacity. Companies didn’t produce all the physical cars that they were capable of producing and that they reported. (It’s either that or imagine some giant car lot–like those giant fields of unsold airplanes that we know exist–filled with 10 million or more vehicles. Or back lot after back lot at one rental car location after another where the auto companies just keep dumping excess production. In Robert Heinlein’s 1957 science fiction novel he imagines a distant future where the government buys new cars from auto makers and then immediately sends them to the crusher. When is this distant future with its absurd economics, according to Heinlein? 2000.)

But we’re still talking about a lot of cars with no ready buyers. Which is why the auto industry is now offering no downpayment, no interest car loans that run for 7 years. Now I know that the list price of automobiles is still climbing for many models, but the effective price to the buyer (or the lease holder)? Include all that interest free money for all those years and throw in free maintenance and free RoadStar (or whatever your favorite brand of roadside assistance might be) and I think you’re looking at deflation.

If you take a look at other parts of the economy and other products and raw materials, I think you’ll see similar deflationary pressures at work. The brokerage industry with its free trades, for instance? Internet companies that “sell” products or services at a los but “make it up on volume”?

It is of intense interest to me to see if the Federal Reserve says anything about deflationary worries in its post-meeting statement tomorrow, Wednesday, April 29.

I expect that the Fed will issue its usual statement of worry about low inflation–well, below the Fed’s desired target of 2% again.

But I have to wonder when that statement of worry about low inflation will turn into a statement of worry about deflation. Are we really convinced that we’ll see 2% inflation anytime soon? I’m imagining telling my grandkids about the fear of inflation around some future campfire and having them tell me they don’t believe it.

The potential effects on the economy, on markets, and on individual financial plans from deflation would be tremendous. I’m sure the Fed, with the example of Japan so starkly visible in front of it, is thinking about deflation. It would be smart for us individual investors and workers to start thinking about it too.

As you might expect from that, this is simply my first whack at deflation and its effects. More to come in the next couple of weeks. Including in my post on the Fed meeting.