Fed won't be able to halt this downturn

Baltimore Sun ^ | 29 Nov 10 | Steven C. Isberg

[SkyPilot]

Is the beast of deflation crouching outside our door? Could this be the real reason behind the Federal Reserve's recent injection of $600 billion into the economy?

Despite the logic of much of the criticism being aimed at the Fed, it may be doing what it has to do to keep the country from spiraling down into a deeper recession. In the midst of what amounts to a virtual economic war with some of our trading partners, it's important for us to understand exactly what is at risk and what the Fed is up to.

First, the risk: Deflation is a chain of events in which consumer spending declines, prices fall, and business activity contracts. When that cycle repeats, it gets worse every time. Goods are cheap, but you're too broke to afford them. Nobody wants what you have to sell, and soon you don't have a job.

[FromLori]

No please post it if you like.

[hinckley buzzard]

Well, at the onset of the Great Depression, the government intrusion in the economy was modest, and debt levels were low. The simple problem of deflation is that prices drop because no one has any money they are willing to spend. Many have precious little money at all.

That is why Fed chief Bernanke said he could cure deflation by dropping money from helicopters. The real fact is, however, if he did that, people would scoop it up and save it.

[Toddsterpatriot]

Computer Hardware and Software have been deflating since the 1980's. Why is that different?

A lower price from increased productivity is a good thing. A great thing!

A lower price because the money supply is shrinking is a bad thing.

[Toddsterpatriot]

I kind of like deflation. hings get cheaper to buy and I have lots of rolls of nickels hidden away!

People who have plenty of money won't mind deflation.

People who make things with borrowed money (and their employees) don't like it as much.

[csmusaret]

The only thing I can think of that’s worse than having the Fed is not having the Fed. I can just imagine where we would be by now if Congressional Committees chaired by Dodd and Franks were in charge of the printing presses.