Monday, November 17, 2008

Deflation in the Fall, again

Deflation is one of the big words of the month. It's freaky, but lets recall that the deflation trumpets were sounded vigorously as recently as the Fall of 2002. The Economist wrote, at that time:

"America's recovery is stalling, as consumers tighten their belts. In the euro area, consumer and business confidence are both on the wane. Although euro-area inflation is above the 2% ceiling set by the ECB, weak demand will push inflation down next year. The case for interest-rate cuts in both America and the euro area was strong, even though the ECB has not yet moved. But will rate cuts work?

Most policymakers in America and Europe blame Japan's slump on mistakes—which they can avoid. An alternative view is that much of Japan's economic sickness is the inevitable after-effect of its bubble in the 1980s. Asset-price bubbles tend to be followed by periods of weak growth, as financial excesses are unwound. The table attempts, in unscientific fashion, to assess the risks of America and Germany catching the Japanese disease."

The big difference is today, much more ammo has been expended, and fears are much larger. Indeed, the tech bubble seems relatively quaint by now. In the Fall of 2002 housing prices were plugging along quite nicely, shielding the body blow of equity markets, and we were doing battle with the Axis of Evil*, affording us a rare moral certitude.

*A name inexplicably unclaimed by an enterprising metal band.


Anonymous said...

It's really too easy to resist. One can easily avoid "deflation" with your favorite cream and mine.

Graham Hussein de las Piernas Gordas said...

I must say that, even as I clicked on the comment, I knew what it was gonna say. You're one (or many) stand up guy.