when it comes to inflation, the only thing we have to fear is inflation fear itself
True, once business owners start fearing inflation, inflation happens...
But pray for inflation? Please. Stop watching the news and observe what is going on around you instead of just "taking someone's word for it." The last 4-5 years our country experienced massive widescale inflation. This was due to 3 main factors: low interest rates (cheap, easy money), the quadrupling of oil prices, and rising house prices. This inflation is what brought about the recession we are in. Not the financial crisis, but the
recession that we were in
before the financial crisis hit...you know, the one that started in Dec. of '07...
The cost of oil is responsible for most price level increases across the board. Most food has increased in price by about 20-30% over the last 5 years, rent has gone up, electric bills have increased anywhere from 15-30% depending where you live, and pretty much every other good or service has also increased in price by these same percentages. This is a cold hard fact that news networks are avoiding. This substantial rise in price levels across the board, coupled with the raising of interest rates that the economy had become dependent upon is what brought on this recession, period.
And now that oil prices have gone down, are companies lowering their prices back to the pre $150 a barrel oil? Absolutely not. In fact, most companies are either raising their prices due to the financial crisis, or keeping prices the same and downsizing the amount of food or other goods offered in a package...for example, Ritz crackers are now about half as thick as they were a year ago.
We, the consumers, NEED price deflation. With all the layoffs and wage and benefit cuts, consumers are finding it harder and harder to afford the basics, and what they
can afford they're getting less of for the same price. Here's what I think is going to happen when we start coming out of this recession, in no particular order:
1)oil prices are going to begin taking off again. It's as much about speculation as it is supply/demand...Remember, OPEC has already decreased production to try and maintain a price level above $70, this is something you probably actually
would have seen on CNN
2)once oil prices go, there goes every other service and good on the market, thanks to transportation costs
3)interest rates are going to sky rocket (that's how the Fed combats inflation, they raise rates in order to decrease the money supply and spur a small recession)
4)once employers start hiring again, us, the consumers and workers, will come to find that since the labor market is so loose, employers will be able to pay us less than they were before . Too many workers + not enough jobs = cheap labor
5)workers aren't making as much, so they are spending less. Businesses begin to struggle (if they even made a recovery from this one)
6)Due to reasons (1),(2),(3),(4),and (5), we fall back into another recession
This is all a very real possibility...and I'm usually a pretty optimitic dude. I don't want this to happen, but it's going to anyways because this, my friend, is economics...this is exactly what your buddy Krugman teaches in his classes. Even Keynesians submit to this long term inevitability, they just deem the short term more important than the long term...
I guess I can call myself an economist now too :wink: