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