While many investors fear a rapid rise in inflation, author Gary Shilling, an award-winning economic forecaster, argues that the global economy is going through a long period of de-leveraging and weak growth, which makes deflation far more likely and a far greater threat to investors than inflation. Shilling explains in clear language and compelling logic why the world economy will struggle for several more years and what investors can do to protect and grow their wealth in the difficult times ahead. The investment strategies that worked for last 25 years will not work in the next 10 years. Shilling advises readers to avoid broad exposure to stocks, real estate, and commodities and to focus on high-quality bonds, high-dividend stocks, and consumer staple and food stocks.

• Written by one of today's best forecasters of economic trends-twice voted by Institutional Investor as Wall Street's top economist
• Clearly explains what to invest in, what to avoid, and how to cope with a deflationary, slow-growth economy
• Demonstrates how Shilling has been consistently right about major economic trends since he began forecasting in the early 1980s

Filled with in-depth insights and practical advice, this timely guide lays out a convincing case for why investors need to be prepared for a long period of weak growth and deflation-not inflation-and what you can do to prosper in the difficult times ahead.

In his comprehensive new book, Deflation, A. Gary Shilling points out the deflationary forces at work in the world, analyzes the impact of the Asian financial crisis, and predicts the kind of deflation that will likely result.

Governments, for example, have done their part by reducing spending and shrinking deficits. With the Cold War over, US defense spending keeps falling dropping from 7.4% of GDP in the third quarter of 1986 to 4% in the first quarter of 1998. Continental governments endure double- digit unemployment rates to move toward the Maastricht target, deficits no more than 3% of GDP. Deregulation among utilities and services is also lowering prices. In the US, Citizens for a Sound Economy, a Republican think-tank, predicts that deregulation of the electricity market would lead to a drop of "at least 43%" in consumers' electricity bills.

Meanwhile, central banks are still fighting the last war, inflation, with higher interest rates. Corporations are adding to deflation momentum with the restructuring that started in the US and UK in the 1980s and has spread to other English-speaking lands. Global outsourcing now provides not only less expensive goods but also cheaper services, including credit card processing and computer programming. Computer and information technology has deflation written all over it. Hardware and software are notoriously prone to price cuts, and users buy the stuff to reduce their own costs.

Outside the US, newly industrialized countries as well as countries recently freed from Communism are becoming major players in the export market. The result is a global glut of products and no one to buy them. With Southeast Asia's financial woes, its consumers are not much of a market, and the US the world's happy dumping ground can only buy so much. Faced with increasing global glut, countries wanting to use exports to improve their economies are more likely than ever to devalue their currencies. No doubt a strengthening dollar is deflationary to the US, and no doubt it is currently welcomed by Washington. But what happens as global glut and weak US exports meet rising labor costs, spurred by the drum-tight US labor market, head on? What happens if a profit squeeze kills overpriced US stocks, and individual investors who rely on their equity portfolios as their savings accounts suffer big losses?

Consumers retrench. Then they watch prices fall, and in a classic move that makes deflation a self-feeding phenomenon, they wait for prices to go even lower before spending a dime.

If, by some slim chance, the Asian crisis proves to be a nonevent for the US, the Federal Reserve will no doubt tighten credit and probably precipitate a recession, preceded, as usual, by a bear market in US stocks. The net effect on consumer behavior would be the same, and as with the case of an Asian-initiated bear market, the end result would be deflation.

When we in the US think of deflation, we think of the 1930s. Its images of soup lines and shanty towns are so vivid that any other idea of deflation pales by comparison. But there was deflation after the Civil War without the financial collapse of the '30s. The deflation Dr. Shilling forecasts coming soon is more likely to be characterized by the oversupply of the late 19th century than the unemployment of the Depression.

The final chapters of Deflation explain how deflation will affect you. Should you keep your stock investments or switch to bonds? Will your company need to be restructured again? What should you do about inventories? Have you personally been saving enough? Dr. Shilling gives you 13 investment strategies, 18 business strategies, and five personal strategies that will work in the deflationary years ahead.

Be prepared. In future years we may conclude that in the summer of 1997, Asia was the trigger for global deflation.

Many feared that the United States was entering a period of prolonged slump after a pronounced boom, much like Japan experienced throughout the 1990s. Others worried that a sustained fall in prices would have a cataclysmic impact on our nation's overhang of consumer debt. Yet another camp blamed low-wage manufacturing countries like China and high-volume retailers like Wal-Mart for becoming the engines of relentless deflation.

In this important new book, Chris Farrell explains that deflation need not presage a collapse. In the process he gives a new way of looking at our economic and our financial futures. More than an introduction to the subject, Farrell points out that deflation has always been a fundamental aspect of the business cycle. For much of the 20th century, deflation had vanished from the economic scene, but its return is no cause for panic. Instead, properly understood, deflation presents opportunities and pitfalls in equal measure for businesses, corporations, the government, and our national economy.