Wikinvest Wire

Deflation - it's starting to get silly now

Sunday, January 04, 2009

So, let me get this straight...

After presiding over the inflation and bursting of the biggest financial bubble in the history of Mankind, in the process blessing soaring home prices that far outstripped any reasonable expectation of borrowers to repay and praising the "financial innovation" of Wall Street for facilitating such, the smartest economists at the world's most important central banks are now concerned (actually, "scared witless" as you'll see below) that prices may fall.

Yes, "Deflation is the New Public Enemy Number 1".

It says so right there in the MarketWatch headline in what is quickly becoming one of the silliest ongoing stories in the global economy - dimwitted economists are once again redirecting the discussion and a gullible public and financial media are going along...

Deflation is the problem now.

Never mind what led up to the current crisis.

More of what got us into this mess is required to get us out.

It seems "the drunk must be kept in Scotch a while longer".

Here she is, doe-eyed Janet Yellen, President of the Federal Reserve Bank of San Francisco to make the case for why all the stops must be pulled out - governments and central banks must borrow and print money as never before.
IMAGE Now that short-term interest rates are at zero, Ms. Yellen favors the expansion of the Federal Reserve's recent unconventional monetary policy measures where anything and everything is bought with newly created money.

She also urged aggressive spending of newly borrowed money by the Obama administration.

The menace is upon us again.

The scourge of "deflation" is here, where individuals see prices dropping like a rock and defer purchases, pulling the rug out from underneath a consumer-led economy, creating a vicious downward spiral, an economic black hole from which there is no escape.

Never mind that people are scared witless because they fear for their job, their retirement accounts, their home, their children's future, and the Western way of life where overconsumption was the rule rather than the exception, something that, up until about a year ago, seemed like a birthright.

Consumers are pulling back because they see prices falling - it's DEFLATION!!

According to the MarketWatch report, central bankers are scared:

But many agree with Barry Eichengreen, a professor at the University of California at Berkeley, who called deflation "a very serious danger."

Central bank officials are "scared, if not scared witless" about the specter of deflation, he said.

The good news is that, because the Fed is so vigilant, the U.S. should be able to avert it, he said.

Fed officials would use the new unconventional monetary policy measures to simply buy up "anything whose price shows signs of going down," he said.
If only the Fed had been a so vigilant a few years ago.


bill money said...

First they punish savers by bringing interest rates to 0. Now they want to inflate away whatever savings we have left.

doc holiday said...

The trouble with chaos is that it is so dynamic:

1. If it were not constrained by zero, those models would want to push it below zero, but that's not possible," Evans told reporters after a panel at the American Economic Association's meeting in San Francisco.

2. “The U.S. economy is undergoing a sharp contraction,” with unemployment poised to rise this year, Yellen said. “The odds are high that, over the next few years, inflation will decline below desirable levels,” and the Fed must “emphasize its commitment to returning inflation over time to the higher levels.”

During a speech earlier today in San Francisco, Yellen said the U.S. economy faces a “serious risk” of stagnating for an extended period of time and “it’s worth pulling out all the stops” on fiscal stimulus.

3. I'm confused, because my model says that The Fed & Treasury totally screwed up The Yield Curve by accepting a bunch of Wall Street trash in exchange for marketable Treasury securities, and then not having a model that is able to fit trash into the yield curve, and thus we essentially have sub-zero garbage floating in the Treasury sewer which is being offered at a massive premium, versus being exchanged at a massive discount. I imagine the confusion here is if the current value of money is being destroyed by the future impact of deflation or if the future value of money that is currently discounted is going to be further eroded by inflation, so yes, I'm confused and seek clarity also... and will not proof this or re-write my on-the-fly rant.

Mathlete said...

Foolish common people. Our problem was never inflation, but not enough inflation! If we stop distorting the market, people will stop engaging in unproductive activities and there will be recession. America must abandon this path to productivity and continue unprofitable investments in bubble sectors. Thank God we have a new President, Fed, Treasury, and many State Governors who agree.

little larry sellers said...

Somebody wake me up when they start printing expiration dates on our paper dollars.

Mathlete said...

Keynesianism explains why so many ancient civilizations disappeared. Their money supplies started deflating, and the people stopped spending money. Eventually, they even stopped buying food because it would be cheaper in another day, and they all died of starvation. Every Keynesian child knows this bedtime story.

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