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Tuesday, April 08, 2014

Why is Deflation so Harmful?

I have a new "explainer" -- their term -- at Moneywatch:

Explainer: Why is deflation so harmful?, by Mark Thoma, CBS News: John Makin, writing for conservative-leaning think tank the American Enterprise Institute, warned on Monday that "Now is the time to preempt deflation." Conservatives are usually inflation hawks. So, why are some of them calling for "aggressive monetization" to avoid the deflation threat in the U.S. and Europe?
Deflation is an actual fall in prices, rather than just the inflation rate getting lower, which is call disinflation. Recall that the fear of deflation was the main reason the Federal Reserve instituted the first round of quantitative easing. What was the Fed so afraid of?
There are three main reasons to fear deflation. ...

    Posted by on Tuesday, April 8, 2014 at 09:18 AM in Economics, Inflation, MoneyWatch | Permalink  Comments (29)

          


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