If you have been article hunting like myself on this fine Fed Friday, you will notice one special word that is floating amidst our sea of information: deflation.
It seems as though the Federal Reserve chairs and board members across the country have their knickers in a bunch over what appears to be one of the biggest threats to the recovering
economy. Aside from a few branches (Philly & Kansas City) most Fed members are calling for action to combat what could be a “Japan-like” deflationary trap
Let’s begin here by looking a little bit further into deflation itself…
Deflation is the increase in the value of money which then allows for the prices of goods and services to lower, because your money is worth more. Deflation can happen for many reasons combining supply and demand, however some of the most basic reasons for deflation are the increases in the supply for goods, people saving (hoarding) money, and the contraction of the money supply. Some even predict
that this deflationary track to be going down a new path. One where the wages lower and the prices of goods stay high.
So our Federal Reserve has decided to once again play super hero in the mess they created. The plan that is coming from the central banking system is to begin “quantitative easing” AKA printing more money.
We can only hope that the Fed’s reaction does not turn abruptly into an overreaction
which could cause the double dip
many are projecting.
Until next week…