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Deflation scare
Today’s WSJ headliner reported a drop in consumer prices as the Consumer Price Index (CPI) shed 1% between September to October 2008. Lower energy prices are cited to be the main cause of the declining cost of goods and economists from J.P. Morgan predict that “among developed countries, consumer prices will fall in the coming quarters, with the U.S. outpacing other countries.”
So prices are falling and everything from gas to beer is cheap-cheap again. That’s a good thing… right?
Killjoy Donald Kohn of the Federal Reserve doesn’t think so. And he is not alone: a number of individuals are concerned about the threat of deflation— a phenomenon in which the price level of goods and services drops consistently over time. This happened to an extreme during the Great Depression, ultimately resulting in a deflationary spiral in which the price level fell so low, that production, wages and consumer demand plummeted in tandem, causing further price level drops.
But in all fairness, I think these people forget that we Americans are full-fledged Consumers at heart and we will drive our Jeep Grand Cherokees and Chevy Suburbans like nobody’s business. Especially in Seattle where
bus fares will rise yet again by $0.50 in 2 months in addition to severe route cuts— ouch!
No news is good news…
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