Oh No, Not…DEFLATION *gasp*
July 30th, 2010
If you have been article hunting like myself on this fine Fed Friday, you will notice one special word that is floating amidst our sea of information…deflation.
It seems as though the Federal Reserve chairs and board members across the country have their knickers in a bunch over what appears to be one of the biggest threats to the recovering economy. Aside from a few branches (Philly & Kansas City) most Fed members are calling for action to combat what could be a “Japan-like” deflationary trap.
Deflation is the increase in the value of money which then allows for the prices of goods and services to lower, because your money is worth more. Deflation can happen for many reasons combining supply and demand, however some of the most basic reasons for deflation are the increases in the supply for goods, people saving (hoarding) money, and the contraction of the money supply. Some even predict that this deflationary track to be going down a new path. One where the wages lower and the prices of goods stay high.
So our Federal Reserve has decided to once again play super hero in the mess they created. The plan that is coming from the central banking system is to begin “quantitative easing” AKA printing more money.
The Fed’s plan is to purchase U.S. treasuries () and funnel the freshly printed money into the economy to avoid a “deflationary spiral”.
We can only hope that the Fed’s reaction does not turn abruptly into an overreaction which could cause the double dip many are projecting.
Until next week…
I found some interesting content here by the way.. Keep up the good work!
Thanks for the article!
Deflation is the scary term perpetuated by central bankers to keep people in perpetual fear. When people are scared of deflation, it makes it much more palatable to print money and debase the currency.
Governments also hate deflation because it prevents people from continually moving into the higher income brackets for tax reasons. If your salary stays constant, you won't be paying the next marginal dollar to the Government. With inflation, of course, incomes continually rise nominally and those exciting upper tax brackets are able to snare more individuals.