How lower prices could actually hurt the economy.
Until recently, the idea that deflation -- the decline of most prices -- was possible, let alone a potential economic danger, seemed outlandish. If anything, inflation was the threat. Led by rising oil and food prices, it was increasing in most countries. But in the past two months, deflation has suddenly become conceivable, and, though still a long shot, it's much more menacing than most people realize. The most urgent economic task for Barack Obama and other world leaders is to prevent the long shot from happening.
A mild deflation—like a mild inflation—would be barely noticeable, and even pleasurable. Who doesn't like lower prices? But beyond a few percentage points, deflation can create economic havoc by forcing debtors to repay loans in more expensive money and causing consumers to postpone purchases. In the Great Depression, deflation reigned. Consumer prices fell about a quarter from 1929 to 1933. Spending collapsed. Supply swamped demand, driving prices down. By 1933, manufacturing output had dropped 39 percent and joblessness had reached 25 percent.
It's this history that makes deflation terrifying. Obama and his fellow leaders should worry. Since mid-September, economic conditions have deteriorated badly. In October, General Motors' U.S. sales were down 45 percent from a year earlier; Toyota's fell 26 percent. Payroll employment dropped by 240,000, the 10th straight month of decline. Abroad, signs of distress also abounded. In September, manufacturing orders in Germany fell 8 percent from August. Stock markets in developing countries have declined about a third since September.
By all odds, this signals a recession that, though severe, fits within the post-World War II experience. It will suppress inflation, not trigger deflation. Remember: U.S. consumer prices in September were about 5 percent higher than a year earlier; in developing countries, inflation now averages about 9 percent. Remember, too, the economy has changed fundamentally since the 1930s. Then, factories and farms dominated. Gluts quickly depressed prices of wheat, steel and meat. Now, our service economy features health care, entertainment and education. Their prices are less volatile.
Still, this crisis has repeatedly confounded "experts." A few months ago, it was widely believed that many poor countries had largely escaped the financial turmoil of rich countries. Their growth would cushion the downturns in the advanced world. No more. In 2007, China grew 11.9 percent and India 9.3 percent. The latest forecast from the International Monetary Fund cuts their growth in 2009 to 8.5 percent and 6.3 percent. Indeed, the IMF has tossed out forecasts made only a month ago. It now predicts harsher recessions for rich countries and slower growth for poor countries.
So, there's an outside possibility that we're on the doorstep of a more dangerous global downturn. Something significant happened in mid-September, either caused by the bankruptcy of Lehman Brothers or coincident with it. Trust among financial institutions evaporated. Credit spreads—the gap between commercial interest rates and rates on safe Treasury securities—exploded. Stock markets plunged. Economies everywhere lurched downward.
RE: RO in RENO
"If anytime recently you bought some screws only to have your power driver rip their little heads off you know what I'm talking about, in short you can no longer get a good screw in this country. And regardless of the purchase price it was a waste of money."
I had to really laugh at this comment "in short you can no longer get a good screw in this country." Because in all actuality...that is exactly what we are getting in this country!!!
RE: RO in RENO
"If anytime recently you bought some screws only to have your power driver rip their little heads off you know what I'm talking about, in short you can no longer get a good screw in this country. And regardless of the purchase price it was a waste of money."
I had to really laugh at this comment "in short you can no longer get a good screw in this country." Because in all actuality...that is exactly what we are getting in this country!!!
???Only banks can loan money they don???t have and charge interest for it. Because the elite who own
the banks made it a policy that the bank can loan 10 dollars for every 1 it actually has.
That is what created the current financial mess or as they say problem with liquidity.
They created the problem by loaning money they did not even have to loan.
Dishonest usury is what it is.
Full disclosure of banking policies would be nice lets have it all put on the table for every one to
see just how corrupt they are taking food and housing from people who work hard while they sit
in there penthouses reading about bank bailout's. No don???t feel sorry for them feel sorry for the
people who are being crushed under there feet from the dishonest usury.
Most people had to give a down payment before 2004 for a home and if you where considered
risky you had to give a bigger down payment.
For example
on a loan of 180,000 with medium to low risk you would fork out 7000.00 to buy a home.
Now what does that translate into for the bank.
The banks can loan 10 dollars for every 1 dollar they have and charge interest for the loan.
win - win for the bank
1 = 10 for them right off plus interest
7000 = 70,0000 plus interest
then you have a payment of 750.00 or so with interest on the loan
750.00 = 7500.00 plus interest per month as you pay in for them
1 year of payments = 90,000 plus interest for them to loan to others.
so if you put 7000.00 down and finance 180,000.00 they get repaid in one year with a payment of
750.00
Sounds strange but remember 1 dollar is as good as ten to them for every dollar they take in they
can loan 10
So don???t feel sorry for them and bail them out. Bail out the public who just keeps paying not
knowing any better.
If you paid a down payment on your house and then you paid on it for even a year you paid it off
in the banks books. 30+ times over if you paid for 30 years.
After the first year they use your money to pay there salaries of 22 million for 22 days on the job what a joke.
The crisis has forced the United States to confront bad habits developed over the past few decades. If we can kick those habits, today's pain will translate into gains.
MEDIA Just a year after buying The Wall Street Journal, the press rapscallion has revitalized the fusty paper.
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