Yankee Running Dog

The Global Economy: Is Deflation the Next Macro Story?

BudH

Don't be so sure on the min wage cut.. One of the canidates for govenor in Washington is proposing just that, a cut in the min wage.

The Global Economy: Is Deflation the Next Macro Story?

I can see Ben cutting interest rates to 0.0% and then realizing that he cannot cut further. I believe that Greenspan actually said that he needed to raise rates from 1.0% so that sometime in the future he could drop rates again. This would be similar to Japan on a historical note. The interesting thing to watch is will foreigners continue to buy Treasuries at 0.0% ??? They seem to be a hard sell right now. A rate increase any time soon would really seize up markets.

Also in the 1929 to 1932 period, people simply quit spending money and prices of just about everything dropped. I think that this is a very probable scenario today.

An interesting question is that if deflation is coming, what will happen to gold. It's hard to look to the Depression for answers there when the countries were abandoning the gold standard and US citizens were forbidden to own gold from 1933. Will gold be a safe haven independent from deflation or will its value fall like everything else?

My intuition (not nearly as complicated and rambling as the author’s words!) tells me that deflation is just around the corner. And capitalist theory does not work very well in deflation. I know Ben spent all his academic energy figuring out how to stop deflation, let’s hope he has something up his sleeve, otherwise our sage George Bush could be correct when he said, "This sucker could go down."