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Deflation Dangers Daunt the Economy

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Posted on Nov 19, 2008
Deflation
telegraph.co.uk

Inflation renders debt less onerous over time. But with deflation, the money supply shrinks and debt becomes increasingly difficult if not impossible to handle.

Analysts believe the economy is already in “horrific shape”—with news this month of record-breaking drops in the cost of living and new home construction—and is inching closer to a dangerous deflationary period, which could worsen the current economic crisis by making debts even harder to repay.


Bloomberg:

The cost of living in the U.S. fell by the most on record and construction began on the fewest homes ever last month, evidence the economy is in the worst recession in at least a quarter century.

The consumer price index plunged 1 percent last month, the most since records began in 1947, the Labor Department said in Washington. Commerce Department figures showed housing starts tumbled to an annual rate of 791,000, indicating the industry’s contraction may extend into a fourth year.

Today’s CPI report signals deflation, or a prolonged price slide, may become another hazard facing Federal Reserve Chairman Ben S. Bernanke and President-elect Barack Obama. Deflation could worsen the economic downturn by making debts harder to pay off and countering the impact of Fed interest-rate cuts.

“The economy’s really just in horrific shape,” said Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities in New York. Fed officials will “take rates as low as they have to” to avoid “a deflation-type scenario, which now all of a sudden is very possible.”

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Anarcissie's avatar

By Anarcissie, November 20, 2008 at 2:00 pm Link to this comment

I don’t really see why the Federal government, as such, could not have done exactly the same as the FRB, to wit, produce a large amount of credit money to inflate the stock and real estate markets and make most people think they were prosperous.  The problem isn’t the origin of the money; it’s the political pressure to print it and pass it around to one’s friends or the good kind of people.

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martin weiss's avatar

By martin weiss, November 20, 2008 at 2:19 am Link to this comment

Peril of corporations issuing public money

By davidforalaska.com

We were warned by these great men of the perils we now face.

  If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and the corporations that will grow up around them will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered…. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.
... The modern theory of the perpetuation of debt has drenched the earth with blood, and crushed its inhabitants under burdens ever accumulating. -Thomas Jefferson

  History records that the money changers have used every form of abuse, intrigue, deceit, and violent means possible to maintain their control over governments by controlling money and its issuance. -James Madison

  If congress has the right under the Constitution to issue paper money, it was given them to use themselves, not to be delegated to individuals or corporations. -Andrew Jackson

  The Government should create, issue, and circulate all the currency and credits needed to satisfy the spending power of the Government and the buying power of consumers. By the adoption of these principles, the taxpayers will be saved immense sums of interest. Money will cease to be master and become the servant of humanity. -Abraham Lincoln

  Issue of currency should be lodged with the government and be protected from domination by Wall Street. We are opposed to…provisions [which] would place our currency and credit system in private hands. - Theodore Roosevelt


  Despite these warnings, Woodrow Wilson signed the 1913 Federal Reserve Act. A few years later he wrote: I am a most unhappy man. I have unwittingly ruined my country. A great industrial nation is controlled by its system of credit. Our system of credit is concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men. We have come to be one of the worst ruled, one of the most completely controlled and dominated Governments in the civilized world no longer a Government by free opinion, no longer a Government by conviction and the vote of the majority, but a Government by the opinion and duress of a small group of dominant men. -Woodrow Wilson

 

Years later, reflecting on the major banks’ control in Washington, President Franklin Roosevelt paid this indirect praise to his distant predecessor President Andrew Jackson, who had “killed” the 2nd Bank of the US (an earlier type of the Federal Reserve System). After Jackson’s administration the bankers’ influence was gradually restored and increased, culminating in the passage of the Federal Reserve Act of 1913. Roosevelt knew this history.

The real truth of the matter is, as you and I know, that a financial
element in the large centers has owned the government ever since
the days of Andrew Jackson… -Franklin D. Roosevelt
(in a letter to Colonel House, dated November 21, 1933)

David for Alaska in the United States Senate in Washington DC.

‘Nuff said. But of course the NY Times won’t touch this story with a stick.
M. Weiss
Mexico, MO

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