Posted on 07/26/2010 7:00:40 AM PDT by SeekAndFind
Economists worry that America could be edging closer to the trap that cost the other nation more than a decade of growth.
The White House prediction Friday that the deficit would hit a record $1.47 trillion this year poured new fuel on the fiery argument over whether the government should begin cutting back to avoid future inflation or instead keep stimulating the economy to help the still-sputtering recovery.
But increasingly, economists and other analysts are expressing concern that the United States could be edging closer to a different problem — the kind of deflationary trap that cost Japan more than a decade of growth and economic progress.
And as Tokyo's experience suggests, deflation can be at least as tough a problem as the soaring prices of inflation or the financial pain of a traditional recession.
When deflation begins, prices fall. At first that seems like a good thing.
But soon, lower prices cut into business profits, and managers begin to trim payrolls. That in turn undermines consumers' buying power, leading to more pressure on profits, jobs and wages — as well as cutbacks in expansion and in the purchase of new plants and equipment.
Also, consumers who are financially able to buy often wait for still lower prices, adding to the deflationary trend.
All these factors feed on one another, setting off a downward spiral that can be as hard to escape from as a stall in an airplane.
For now, the dominant theme of the nation's economic policy debate remains centered on the comparative dangers of deficits and inflation. However, economists across the political spectrum — here and abroad — are talking more often about the potential for deflation.
(Excerpt) Read more at latimes.com ...
The latest U.S. data are sobering: Consumer prices overall have declined in each of the last three months, putting the inflation index in June just 1.1% above a year earlier. The core inflation rate — a better gauge of where prices are going because it excludes volatile energy and food items — has dropped to a 44-year low of 0.9%.
Look for a TSUNMMI of a mid-term election on November 2.
I have a friend who is also the music minister head of my parish church who just got back with her husband from Japan for vacation. Had a good time, but the country is EXPENSIVE.
It may not be as easy as it once was. The Fed is losing the ability to create inflation. They are in a box. They can not raise rates. Unemployment is over 10% and the money they print never gets out to the consumers. A real mess.
But the NY Times just said the market is about to take off? I’m so confused? (Sarc off)
I think the smarty pants are dumb as a box of rocks. When you run the printing presses, that can cause a deflationary spiral too, because it destroys confidence in the money and there fore the Velocity falls. GDP = M * V. The mistake we’ve all made is believing excess M leads inevitably to immediate inflation, when it can just as wll drop velocity even faster.
This argues for fixed rule money creation and elimination of the Fed. It’s the constant tinkering that kills the economy.
Deflation is good. It reduces costs of exports, thereby reducing the trade deficit and increasing production at home. It also increases savings, which will increase capital to fund new businesses.
The U.S. was in a deflationary period from 1789 until the Federal Reserve was created in 1913. During this time frame, the U.S. experienced possibly the greatest economic growth that has ever been seen in the history of the world.
True. If they can not create inflation the economy is shot. Look out below!!!
This would be very bad news for gold hoarders.
Okay,520 weeks of unemployment checks!
You could create velocity just by giving massive handouts. With fiat money, you can just print it and give it away in the form of entitlements.
THIS is what is sobering:
http://www.chrismartenson.com/crashcourse
And an important thing to ponder is that just as the bankruptcy of Vallejo, CA did not shake the world, but the same thing happening to, say NYC just might, the US cannot experience the same thing Japan did without it having a significantly greater world impact.
And, of course, Japan was a nation of savers. We built this empire on Debt - debt to other nations. It needs continued exponential growth to survive. If it contracts, or even stagnates, it’s gonna be a lot worse then a seemingly benign “lost decade”.
It will get bad worldwide. Almost certainly a major “hot” war would be the result.
>>Look for a TSUNMMI of a mid-term election on November 2.<<
Yep, but it is like voting in a new crew on the Titanic AFTER it has hit the iceberg and gone dead in the water. At least we can see how a different party might organize the manning of too few lifeboats...
Bernanke idiot.....
I can’t really understand deflation given the rate at which we are monetizing the deficit.
At some point, the piper must be paid...
“Consumer prices overall have declined in each of the last three months, putting the inflation index in June just 1.1% above a year earlier.”
How can we have “deflation”, yet, have inflationary prices?
These “get ready for deflation, it’ll be worse than inflation” stories have come out every couple of years since the mid-80’s (maybe earlier, but that’s the first time I remember reading one). Even Rush Limbaugh got on board back in the 90s, telling his audience that “if you think inflation is painful, wait till you experience deflation.”
I’m still waiting for it to happen. All I know is that the price of pretty much everything in stores is shooting upward, although I don’t hear anything about it in the SRM.
Liberals hate deflation. Liberals love inflation because inflation destroys the value of savings accounts and investments. Liberals don’t mind inflation, because they have inflation-proof salaries, benefits and pensions.
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