Freudian Slip at the Financial Times? Posted on February 18, 2009 by Yves Smith Get a load of this (the subheadline): Post navigation ← Links 2/18/08 "Asia diesel market seen going from bad to worse" → Subscribe to Post Comments 21 comments Anonymous February 18, 2009 at 4:41 pm Given the Fed’s other statements on their economic projections for 2009, I’m not sure that subtitle is a slip exactly. Or perhaps that was your point. aw70 February 18, 2009 at 4:43 pm Well… Colour me unimpressed. Even if this were true… 2% deflation. So what, really? A small-ish amount of deflation is not the end of the world. Prolonged deflation, might be a problem, yes, or more pronounced forms of it. But this? Quite apart from this being, as you say, a Freudian mistake – nothing worse should befall us than 2% deflation. Seriously. A. Abbott_Of_Iona February 18, 2009 at 4:52 pm Obama unveils foreclosure plan ~ for the USA. Anonymous February 18, 2009 at 4:54 pm Not so sure about that, the Japanese have merely hovered on the verge of deflation, and most commentators seem to think even that is a very bad thing. Anonymous February 18, 2009 at 4:57 pm 2% seems like a small number to me and I doub’t if they can come within a factor of ten of their goal. Anonymous Monetarist February 18, 2009 at 5:36 pm Mission Accomplished. Anonymous February 18, 2009 at 5:38 pm Bernanke said to congress “We will not allow asset prices to decrease by 10% per year” Early Withdrawal February 18, 2009 at 5:43 pm “Today marks the beginning of the End”Obama 2/17/2008 * chortle * oh my its getting macabre Nicotine Patch February 18, 2009 at 6:00 pm “oh my its getting macabre” indeed, fun huh? lovely to hear that Fair-O proclaims it close to over tho. don’t about you, buti’m ready for a new book,not same as the old book… whether He likes it or not. Michael Lumley February 18, 2009 at 6:30 pm Given the extravagant fiscal policy and the effect of a treasury bubble collapse, I think that in a year or so we’ll all be relieved to be talking about 2% inflation, let alone deflation of any kind. ndk February 18, 2009 at 6:57 pm Speaking of deflation, the Fed is paging Dr. Mankiw: tax cuts may heighten deflation risks, and they’re totally right. I can’t support this fiscal deficit whether expenditure or tax cuts. There’s just a paucity of evidence that either yields any benefits, even in a liquidity trap. Justin February 18, 2009 at 7:27 pm I’ve been watching commodities strongly over the last two years, and November 20th was an interesting day: since then oil and gold decoupled (oil went much lower, gold went back up relative to the US dollar). I think people are betting that deflationary pressures continue, yet the currencies themselves will be devalued. So depending on what your base metric is, we can see either or both inflationary or deflationary effects. groucho February 18, 2009 at 8:32 pm Yves, rather ironic since ~ 2% deflation SHOULD have been the target back in the 90’s with the development of Globalization and all that entailed for the labor markets. I knew we were in trouble when the Fed declared it would be “easy to fix the price of gold” (Wayne Angell), which commenced ~ August 5 1993.(Goodbye inflation expectations, Helloooo Asset bubble-izations!) A virtuous “good” deflation cycle was nipped in the bud and the rest is history…as they say Anonymous February 18, 2009 at 9:18 pm Well did not the price level in the US fall steadily in the post Civil War period when the US was becoming an industrial powerhouse? To wit:Between 1875 and 1896, according to Milton Friedman, prices fell in the United States by 1.7% a year…So why the panic now about deflation? Anonymous February 18, 2009 at 9:29 pm @ 9:18 Because at that point we were a manufacturing nation, soon to be the largest creditor in the world. We are now a service economy, and the largest debtor. Anonymous February 18, 2009 at 9:58 pm Along similar lines, I heard of a TARP-imbued zombie bank willing to pay an interest rate of negative 10 percent on jumbo deposits larger than $100,000. And they guarantee that in less than 20 years you account balance would be $0.00. Just in time for retirement. Vinny GOLDberg Charles February 18, 2009 at 10:06 pm Rogoff was advocating a much higher rate (6% for two years). I think Bernanke wants such a level too (and maybe for more than two years !), but he doesn’t want to show his hand too soon. The more the treasury can issue cheap long term debt without the Fed assistance through QE, the better. When external issuers (households and foreign CB) will have had enough, then the Fed will launch its QE ICBMs. At the same time,and as the economic situation will have gotten worse, it will adjust its target upwards. If the situation is really bad then, it will be a two figures target. Yves Smith February 18, 2009 at 10:23 pm Anon of 9:18 PM, Since you weren’t around then, you are unaware of the great dislocation that deflation produced. Ever heard of William Jennings Bryan? His “Cross of Gold” speech? He was a one issue guy, and that was to create inflation, because deflation was devastating to farmers and other debtors. Jennings was against the gold standard, because the remedy to trade imbalances in a gold standard regime is deflation. And a St. Louis Fed paper, which did an extensive look at period of deflation (not depression, mind you, and included the 19th century period you mentioned) found that “lower output growthwas associated with periods of deflation in nearly all the countries examined.” So the economy would likely have grown at a faster real rate in the absence of deflation. bb February 19, 2009 at 1:28 am reuters mentioned 2% long term inflation target. this just shows the race to irrelevancy amongst the traditional finanicial media is really fierce. expect soon holly/bollywood material as well. MyLessThanPrimeBeef February 19, 2009 at 11:49 am If you look at a diverging mathetical series, at the end, it flips from one extreme to another and the extremes get bigger and bigger, before, in reality, it degenerates into chaos. That’s what we might be looking at soon – we came from raging inflation 6 months ago to deflation now to possible hyperinflation pretty soon if the Fed and the government have their way, because we are in an unstable state right. The best thing to do is do nothing until it settles on its own accord. Any disturbance or interference and the whole thing could unravel. BakoEcon February 19, 2009 at 1:15 pm Can we please stop calling banks “zombies”. While they are indeed undead, the proper description is “vampiric”. Okay? Comments are closed. Tip Jar Please Donate or Subscribe!