This week’s perfect storm of bad worldwide economic news, including depressed growth numbers from India, China and the U.S., capital flight from Spain and continued stalemate in the European Union over Greece and the future of the euro, make one wonder whether the high end art market can continue its contrarian record sales indefinitely.

A major sign that it cannot was the 32 percent drop in revenue at the Hong Kong auctions from the previous year, as the auction houses dissembled by blaming high consigner price demands, rather than the obvious slump in the Chinese economy. Looking ahead, I wonder if a deflationary spiral, such as the one that hit the Japanese real estate industry and its art market in 1990, might destroy the auction market before the coming November sales.

Classic deflation is marked by falling prices for goods as various economic players hoard cash in anticipation of lower prices to come, reducing demand and then spiraling down as output and supplies tumble reducing economic activity to inertia. Certainly even the very richest among us must feel that $100 million price points for Picasso, Warhol, Bacon and Richter are the ceiling after which true valuation and resale are impossible, and, as a reward for their participation in an unprecedented boom, even the rich are entitled to some price relief, especially when the world economy, as a whole, is quickly contracting.

This means that the rich will sit on their hands and stop buying, Deflationary pressures in general will cut down the underpinnings of the art market, with art galleries closing and secondary market action drying up. Midrange collectors, with hundreds of pieces valued in the low millions collectively, will panic, trying to raise cash in the face of deflation and finding no takers. This will increase the demand for bargains, even for Warhols and Picassos, with arguments such as “rarity” and “quality” bursting in the bubble of what was an artificially stimulated price boom.

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