1. Anonymous

    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.

  2. aw70


    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.


  3. Anonymous

    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.

  4. Anonymous

    2% seems like a small number to me and I doub’t if they can come within a factor of ten of their goal.

  5. Early Withdrawal

    “Today marks the beginning of the End”
    Obama 2/17/2008

    * chortle *

    oh my its getting macabre

  6. Nicotine Patch

    “oh my its getting macabre”

    indeed, fun huh? lovely to hear that Fair-O proclaims it close to over tho.

    don’t about you, but
    i’m ready for a new book,
    not same as the old book…

    whether He likes it or not.

  7. Michael Lumley

    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.

  8. Justin

    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.

  9. groucho

    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

  10. Anonymous

    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?

  11. Anonymous

    @ 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.

  12. Anonymous

    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

  13. Charles

    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.

  14. Yves Smith

    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 growth
    was 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.

  15. bb

    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.

  16. MyLessThanPrimeBeef

    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.

  17. BakoEcon

    Can we please stop calling banks “zombies”. While they are indeed undead, the proper description is “vampiric”.


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