An article in Espresso by the Economist commented on possible deflation occurring in the American economy with the now lower prices of fuel. I believe that some deflation is necessary and will give the overall economy more of a boost to grow growth and stabilize prices, possibly allowing more production to happen with less cost and increasing demand.
However, the article is right to point out that extended periods of deflation are bad because they cause consumers to hold off spending, anticipating lower prices. I think that lower prices in the short run is what is needed in order to keep things affordable in the marketplace, but that's just me.
6 comments:
In 2009, the US economy experienced deflation and then Fed chairman Ben Bernanke applied quantitative easing. Would quantitative easing work this time too?
I feel deflation is a bad idea because while we see the economy stepping on the right foot in terms of growth, a deflationary policy might hurt the growth and investor confidence.
I feel deflation is a bad idea because while we see the economy stepping on the right foot in terms of growth, a deflationary policy might hurt the growth and investor confidence.
I agree, deflation could possibly hurt the economic growth instead of helping it. The low oil prices could stimulate more money flow which could help the economy grow.
While I agree that a long term deflationary policy isn't a good idea, is it possible that deflation in the short term might be good to keep things in balance and lower prices?
Considering the general trend towards inflation recently, I can see how this could be a good thing if maintained in the short term. As for quantitative easing, I personally don't think that it should be applied again/we should try our very best to avoid it, since it's essentially the government buying its own bonds when it works correctly. This isn't exactly a good thing.
As far as it goes, too, this will only worsen the problem of stagnant wages.
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