Get set for deflation, muted job growth, social unrest

THE Monday after the G-20 in Shanghai should have prompted a rally in global equities. Instead, we saw the Shanghai Composite drop more than 3 per cent. While the meeting clearly disappointed investors for its lack of an agreed coordinated policy response, it also highlighted the hard road ahead for finance ministers and central bankers to save the planet from a deflationary spiral and rapidly declining inflationary expectations.

In order to contain and understate what is clearly the macroeconomic issue of our time, most commentators speak of "disinflation". Perhaps it's time for us to acknowledge that "deflation" is here. Then only will policymakers make an attempt…