The Economic Crisis

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andrewwski
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Re: The Economic Crisis

Postby andrewwski » March 17th, 2009, 5:08 pm

Nobody has brought up anything to discuss, that's what happened.

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Re: The Economic Crisis

Postby 2win » March 17th, 2009, 5:16 pm

Oh, well...anybody got anything to dicuss? How about how some other countries are facing inflation including the US?
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Re: The Economic Crisis

Postby andrewwski » March 17th, 2009, 5:38 pm

Good. Seeing a positive number in the inflation column right now is a good thing. Because we very realistically could be facing deflation, which is bad. Very bad.

Being in a recession, we're not going to see any excess of inflation. According to aggregate supply and demand, when the equilibrium is below the Potential GDP (potential output), we are not going to see much inflation.

So the fact that we're still seeing some inflation is a good thing. Although the inflation rate is getting smaller, which is worrisome.

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Re: The Economic Crisis

Postby 2win » March 17th, 2009, 5:41 pm

Sorry, but why would not seeing the inflation rate go up a bit be worrisome?
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Phenylethylamine
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Re: The Economic Crisis

Postby Phenylethylamine » March 17th, 2009, 5:49 pm

Deflation? Where would that come from in a recession? The Great Depression- clearly the biggest "recession" this country has seen- was full of stories of families having to take entire wheelbarrows of cash to buy a loaf of bread... that doesn't sound like deflation to me.
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andrewwski
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Re: The Economic Crisis

Postby andrewwski » March 17th, 2009, 5:50 pm

Sorry, but why would not seeing the inflation rate go up a bit be worrisome?
Because that would mean it's going down. You absolutely want to avoid deflation at any cost. Deflation is bad.

If you look at a graph of aggregate supply and demand curves, that means we have a reduction in demand. So naturally production will be reduced as well to re-establish an equilibrium. That would mean we're operating even further below our potential GDP. Thus, we'd have more unemployment, be even in a deeper recession.

I'll try to draw an aggregate supply/demand graph or scan in my economics notes if it would help.
Deflation? Where would that come from in a recession? The Great Depression- clearly the biggest "recession" this country has seen- was full of stories of families having to take entire wheelbarrows of cash to buy a loaf of bread... that doesn't sound like deflation to me.
Uhm, wrong. The Great Depression was the worst case of deflation our economy has ever seen. It was a huge deflationary spiral.

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Re: The Economic Crisis

Postby Phenylethylamine » March 18th, 2009, 3:16 am

Then where do said stories of inflation come from? I mean, my US History teacher last year wasn't the world's greatest, but I'm pretty sure the textbook backed her up on that one.
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Re: The Economic Crisis

Postby Avis_de-Incendia » March 18th, 2009, 7:16 am

In economics, deflation is a persistent decrease in the general price level of goods and services. Deflation occurs when the inflation rate falls below zero percent, resulting in an increase in the real value of money — a negative inflation rate. Inflation reduces real value in money, deflation increases the real value in money. This should not be confused with disinflation, a slow down in the inflation rate (when inflation decreases, but remains positive).

Deflation is considered a problem in a modern economy because of the potential of a deflationary spiral and its association with the Great Depression, although not all episodes of deflation correspond to periods of poor economic growth historically.

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Re: The Economic Crisis

Postby bah » March 18th, 2009, 11:50 am

FOMC Statement: http://www.federalreserve.gov/newsevent ... 90318a.htm

"Moreover, to help improve conditions in private credit markets, the Committee decided to purchase up to $300 billion of longer-term Treasury securities over the next six months."

The FOMC statement is in contrast to the Bernanke interview conducted by 60 minutes. In my opinion, the 60 minutes interview was rosier than the FOMC statement.
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Re: The Economic Crisis

Postby andrewwski » March 18th, 2009, 1:08 pm

In economics, deflation is a persistent decrease in the general price level of goods and services. Deflation occurs when the inflation rate falls below zero percent, resulting in an increase in the real value of money — a negative inflation rate. Inflation reduces real value in money, deflation increases the real value in money. This should not be confused with disinflation, a slow down in the inflation rate (when inflation decreases, but remains positive).

Deflation is considered a problem in a modern economy because of the potential of a deflationary spiral and its association with the Great Depression, although not all episodes of deflation correspond to periods of poor economic growth historically.

8-)
I think you copied that off Wikipedia...

But yes, that's exactly correct.

Phenylethaylamine, I don't know where your stories are coming from. And your teacher was wrong then. It's not an arguable topic - there was deflation, not inflation, during the Great Depression. Look it up for yourself.

And I recommend reading the link that bah posted too. You'll see that the Federal Reserve is actually trying to increase inflation. The national rate for inflation is 3-4%. That means we ideally will have 3% to 4% inflation every year. Too much inflation is a problem, as prices rise but output does not. But too little inflation, or deflation, is a problem as well. That means lowering production and higher unemployment. The Federal Reserve tries to act to keep it in its correct place.


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