US Exporting Deflation to Europe, Japan: Economist

Deflation in the United States threatens economies across the globe, particularly Europe and Japan, John Makin, chief economist at Caxton Associates, told CNBC on Wednesday.

"The dollar is getting weaker- that's really the U.S. exporting deflation to the rest of the world," he said. "That means Europe is getting stronger, and Japan's getting stronger."

This comes at a time when the yen has hit an eight-month high against the dollar. As the dollar falls against currencies like the yen and euro, it would make it even harder for Japan and the Euro Zone to increase output, he said.

Deflation is associated with long-term episodes of weak economic growth, harming corporate earnings and employment. The most severe were the Great Depression of the 1930s and Japan's "lost decade" in the 1990s. If housing prices were factored into the CPI instead of imputed rent, Makin pointed out, the United States would have a "serious deflation issue already."

Makin echoed St. Louis Federal Reserve President James Bullard's comments that the Federal Reserve should confront the deflation situation in the United States.

"When the interest rate instrument isn't very effective, you need to use the monetary supply instrument, which is basically go buy some Treasuries," said Makin. "I always like to say that we are in the experimental drug phase of monetary policy. They'll have to step up and buy more Treasuries—the sort of 'break glass kit' for deflation fighting."