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Post re: Economics: on Budget Deficits and Deflation (Tor Guimaraes, US)
Created by John Eipper on 03/04/09 1:06 AM - re-economics-on-budget-deficits-and-deflation-tor-guimaraes-us

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re: Economics: on Budget Deficits and Deflation (Tor Guimaraes, US) (John Eipper, USA, 03/04/09 1:06 am)

Tor Guimaraes writes: Intuitively and superficially one might expect the degree of difficulty succesfully fighting inflation or deflation to be about the same. Unfortunately for the US present economic predicament, that is not true. In a healthy economy, inflation can be controlled successfully by merely raising interest rates. When an economy enters a deflationary spiral as we have now, lowering rates does not help much because no one is buying. If consumers don't buy for whatever reason, business slows down, reducing inventories and laying off workers. That, in turn, will further reduce aggregate consumption, and so on. That is why some months ago when forecasting the US economy I wished our government would focus any stimulus on promoting entrepreneurship, creating jobs, lowering loan rates, and reducing taxes for the low and middle classes. The deflationary spiral must be artificially broken or the social devastation will be enormous even after the economy stabilizes at a much lower GDP level. In the long run, printing a lot of money in a stagnant economy is a good way to debase your currency and produce crippling inflation. It won't improve the economy. -- For information about the World Association of International Studies (WAIS), and its online publication, the World Affairs Report, read its homepage by simply double-clicking on: http://wais.stanford.edu/ John Eipper, Editor-in-Chief, Adrian College, MI 49221 USA

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