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David Goldman: ‘Extreme Risk’ of Deflation Ahead
CNBC.com | May 30, 2012 | 09:37 PM EDT

Weak gold prices, softening oil prices and a lackluster stock market while the euro zone crisis could increase demand for U.S. dollars — but is deflation the next stop?

“It’s an extreme risk, though I don’t think it’s an inevitable outcome,” David Goldman of financial research firm Macrostrategy said Wednesday on CNBC’s “ The Kudlow Report .”

Goldman, the former global head of fixed income research for Bank of America, pointed to substantial risk — and a possible domino effect across the Atlantic.

“We have the first major OECD economy, namely Spain, which is going to implode to the point that, for example, bank senior debt is likely to be wiped out,” he said. “That simply hasn’t happened in the postwar period to any major economy.”

Such a tumble could spell trouble for Italy, Portugal and France, in particular, “because the French banks own the Spanish bank debt,” Goldman added.

The source of risk? Europe.

“There’s virtually perfect, 100 percent correlation between stock market, oil prices, gold prices, all of these things, treasury bonds,” Goldman said. “It’s all moving together because people are moving out of risk.”

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