Your Black Money: Deflation is a Problem
Everything is on sale. And that’s not a good thing.
Consumer prices in October fell at the fastest pace in more than 60 years, sucked down by the rapidly deteriorating economy. The prices of oil, food, cars, clothing and electronics have all plunged. Home prices continue to swoon and so do stock prices.
As the early reports from the holiday shopping season suggest, the nationwide fire sale might seem like a boon for consumers. But it’s increasing the risk that the economy could become mired in a dangerous deflationary spiral — a widespread, sustained reduction in prices. That’s something that hasn’t happened here since the Great Depression.
Economists say it’s too early to tell whether deflation has set in — and many say the government’s aggressive responses to the credit crunch likely will prevent sustained deflation.
Others aren’t so sure. Nouriel Roubini of New York University predicts that what he calls “stag-deflation” — a recession combined with deflationary forces — will be a big concern in the coming months, here and abroad.
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