The next crisis: Deflation?
Several years ago I wrote a book, Deflation: What Happens When Prices Fall. I don’t think we are going to have another Great Depression. The monetary and fiscal authorities will make sure of that. Nevertheless, the recession in the U.S. will be severe. Asset prices are sharply lower. The banking system is constrained. And the competition for markets and profits will heat up in the global economy as growth slows worldwide. Taken altogether, it’s a recipe for deflation, or an overall decline in the price level.
My guess is right around when Fed chairman Ben Bernanke thinks he can relax at least a bit, he’ll face the prospect of falling prices–something the Fed hasn’t confronted since the 1930s.
Deflation, not inflation, is the big risk.
Marketplace is on a mission.
We believe Main Street matters as much as Wall Street, economic news is made relevant and real through human stories, and a touch of humor helps enliven topics you might typically find…well, dull.
Through the signature style that only Marketplace can deliver, we’re on a mission to raise the economic intelligence of the country—but we don’t do it alone. We count on listeners and readers like you to keep this public service free and accessible to all. Will you become a partner in our mission today?