grieder article on deflation

June 20, 2003 12:35 PM

Deflation Nation"This legacy of accumulated excesses lies across the American economy like a heavy wet blanket"
posted by thedailygrowl (6 comments total)

Interesting that Howard Dean used the threat of depression as a campaign strategy. If the markets even start to look like they're beginning to truly tank, I bet we'll see Ms. Clinton make a bid for office.
posted by Pinwheel at 12:58 PM on June 20, 2003

It's ok, as long as we continue to use our global military dominance to our economic advantage we'll all be rich until Our Savior's second coming.

You lefties...get a grip.
posted by zekinskia at 1:41 PM on June 20, 2003

Deflation primer from the Economist. The economy at real risk is Germany and the Eurozone
posted by grahamwell at 2:00 PM on June 20, 2003

"I've been going up so long, that level seems like down to me."

One thing that is perplexing economists is that the old indicators, which seemed to be reliable at a national scale, just aren't working like they used to. The best example is "housing starts", a fall of which used to signal a downturn as reliably as its predecessor "car loads", that eventually also failed.

Well, though the rest of the economy faltered from its rapid growth, "housing starts" has continued to hum along at "bubble" rates. So now there assumption has been that "maybe housing starts have become a lagging indicator."

But "housing starts", as a bubble, hasn't burst. And yet it *seems* that a recovery is underway. Which would also seem to suggest that a major part of the economy has pretty much *ignored* the other major parts of the economy.

It's not supposed to do that. And things like this are perplexing economists, which is why their forecasting seems to be very apprehensive.
posted by kablam at 2:23 PM on June 20, 2003

kablam: I'm sure plenty of economists expect real estate to stay strong as long as money stays cheap.
posted by trharlan at 3:56 PM on June 20, 2003

Housing starts are humming along at bubble rates because the bubble is ongoing in housing. The same basic inputs that led to the stock market money -- that is, huge infusions of money into the system via low interest rates -- are being re-input into the housing market every time the prime lending rate drops, and drops, and drops.

The problem is that there's no historical precedent for prime lending rates dropping to zero or below -- except in present-day Japan, where it isn't working. At a certain point there's no lower mortgage rates can go, and no higher prices can go. Refinances end, and home sales lag.

But you're right, kablam, economic forecasting has become very strange. Every ominously awful bit of economic news dents the market a little bit; then the next day some minor index comes in less-awful-than-expected and the markets go into ecstasy.

More recently, bad news has been good news because every bad indicator is proof that the Fed will cut interest rates. This is a bit like rooting for the illness to worsen because the painkillers feel so much better.

Correspondingly, any positives in the past few weeks have made investors scared that the interest rate will stay as it is. This, I think, underscores investors' real faith in the heartiness of the "recovery" we're supposed to be in: Leave it alone, and the economy will sink.

I think what they're really scared of is that Greenspan knows there are only a few damp matches left in the matchbox and a few wet twigs for kindling -- and he may want to hang on to those matches until there's no other choice but to use them. On the other hand, that may be now.
posted by argybarg at 6:09 PM on June 20, 2003