nov 20th, 2008
this appears to be the new worry after the unexpectedly large drop in consumer prices in the US in oct.
deflation -- contrary to what you might expect at first glance -- is actually a bad thing.
http://www.businessweek.com/investor/content/nov2008/pi20081119_603623_page_2.htm
meanwhile, the harvard-business-school-educated p chidambaram asked the WEF conference on india participants to reduce prices!
what, chidambaram wants to invite a deflationary death spiral? we have to figure out what ideas (like p-notes) he has squirreled away for personal enrichment in that eventuality. probably involves some deal with some arabs.
fortunately, on the other hand, chidambaram is also attempting, as an election stunt, to mightily increase inflation, by giving large amounts of moolah (upto 300% increases) to all those government bureaucrats. fine way of holding down inflation, in addition to the 60,000 crore national kkkangress-cadre enrichment program (also known as some rural employment guarantee program, a total pork-barrel deal).
i ask you, aren't i justified in being wary of harvard types? there's chidambaram, then there's obama, and then there's my dubious cousin who graduated from harvard law :-)
1 comment:
Rajeev,
Disclaimer : I have no background in economics, except for trying to dabble in various personal investment options.
(Monetary) Disinflation is good thing. It increases the value of money people hold. Contrast this with the engineereed inflation (the main job of any central bank) which steadily makes people poor and banks richer.
Economic deflation i.e. the bust that comes after boom may also be good if the prices fall due to increase in productivity.
If the prices begin to fall because no one has enough money to buy anything....well, we are in that stage now, it just means that banks have loaded people with as much debt as possible to prop GDP figure. Interestingly, using borrowed money to feed consumer demand is actually a process which makes the consumer/nation poorer. In such a case, high GDP figure actually means how fast the nation/consumers are making themselves poor.
Why government is scared of deflation : Things go out of the hand, and boom engineered by easy lending and debt fuelled consumerism leads to bust. The unemployment that comes with it is a political problem unless you are already living in USSR or Zimbabwe.
BTW, I consider Central Bank as the vilain of free market economy because it manipulates the markets by controlling the supply of money and prinitng any money it wants.
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