It's Deflation, Stupid
Larry Doyle of Sense on Cents had an awesome piece over the weekend on the spectre of deflation - you know, the thing that doesn't keep Ben Bernanke up at night (he's got the sound of his helicopter rotors spinning to do that) - that I recommend. Mostly to Timmy but I digress...
Sense on Cents:
Although the American consumer is much more accustomed to inflation and the threat of inflation, I am increasingly convinced that the threat of deflation remains the greater challenge. This battle between macroeconomic deflationary forces versus governmental supported inflationary programs is THE ultimate issue facing our economy in 2010 and beyond.
We hear very little about deflation from Bernanke, Geithner, or other central bankers here in the United States. Why not? If they were to even bring attention to it, I think they would cause a stir and legitimize the underlying deflationary forces at work in our economy. What do we hear? Continuous platitudes about how inflation is under control. Remember that the primary mandate of the Federal Reserve is to work to achieve stable prices. How is it going about that currently? Massive federal programs including ballooning the Fed’s balance sheet to prop the economy and prices from the weight of deflationary forces. How and why have these deflationary forces developed? Excessive debt throughout large sectors of our economy.
What other country has run up enormous debts and played the ‘extend and pretend’ game in terms of not acknowledging losses on loans and other forms of debt? Japan. What is Japan experiencing currently? Increasingly entrenched deflationary pressures.
Well yes but Zimbabwe Ben did not read Japan's handbook, all he's worried about is "preventing" a second Great Depression (too late, homeslice).
Did he read Economics 101? I don't think so.