Group-
Would someone like to weigh in on
the issue of whether the Fed can prevent a Deflationary scenerio? This
has to do with
the velocity of money; or how fast
money will be spent once it is put into the economy. Will the printed
money be spent
at all; or would consumers use to it
further reduce debt? The contention
is that the government or the Fed can make the money available, but if consumers or business does not spend it, the
result will be Deflation anyway. I've read that while this statement
is partially correct; it is not the
case of the U.S. Japan is the example used where Deflation has been
ongoing now for about ten years. However;
it is said that Japan has a couple of things going for it that helps
them withstand Deflation
which the U.S. does not: consumer savings and little or no debt. As the
theory goes; the U.S. cannot take a Deflation which is why the Fed guy Bernanke says they will do whatever it takes to
prevent that economic scenerio from happening. The consequences of that action is simply stated as
'inflate or die' and the result would be; well: a LOT of INFLATION.
The
question is; does the Fed in fact
possess the tools and power to PREVENT
A DEFLATIONARY ECONOMY?
Thank you for any thoughts or
comments.
Chas
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