Shiller: US could likely to fall into deflationary spiral ala Japan

[Eugene]

I don’t see any mention of an economy-wide deflationary spiral. He’s merely predicting a Japanese-style slump in house prices (sustained declines for 5+ years).

The good Professor is a smart man; but with Helicopter Ben in charge of FED, How can there be a sustained deflationary spiral? If Ben sets the FEDs rate to near zero and issues long term repo’s on funny paper, I can’t see how there can be deflation.

Agreed. Nationwide deflation is the boogeyman of modern economics. As long as we have an academic like Helicopter Ben in charge of the Fed, he will do everything in his power to prevent it. Repo’s on funny paper aren’t even necessary. You’ll find out what he’s really going to do if you read his speech that gave him his nickname. (The fact that it’s an election year makes this strategy very likely)

All you need is to prop up consumer spending somehow. Main deflationary risk right now is that people might choose to reduce discretionary spending and it would hurt prices of nontradables and services. Falling dollar is good because it puts more dollars in the hands of workers of exporting industries. Tax cuts or bailouts will work toward this end too.

Once you cause/induce reasonable perception/suspicion that US $ is not valuable, inflation has to kick in.

Inflation will kick in regardless of perception whether the US$ is valuable. This is a complex issue, anyway. It’s not enough to think that the US $ is valuable. You also need a good valuable alternative.

And infation in reality, i.e. not “core inflation” is WAY up. Anyone recall what milk was a year ago?

Inflation indexes include three broad categories of goods/services – non-discretionary tradable goods (milk, wheat, oil), discretionary tradable goods (cars, electronics, apparel), and nontradables (hotels, car insurance, restaurants). U.S. economy is 70% third category. Consumer retrenchment will not lead to consumers cutting down on milk. It will mean that more people stop travelling, buying car insurance and eating in restaurants. Thus decreasing prices of restaurant meals and hotel rooms, leaving some fraction of people in the restaurant and hotel business unemployed. Thus further lowering the amount of money available for discretionary spending. That’s the kind of deflation everyone is afraid of.

[Huckleberry]

It appears like this may be a good thread to restart.

Many well known economists (and even a few dissenting members of the Fed) are now starting to become highly interested/worried about the US economy becoming deflationary over the next year.

What are Piggs experiences and thoughts regarding what they’re seeing and reading?

Rich, I know you recently wrote an article expressing your view and the low probability of this. Do you still stand by your assessment/analysis?
http://www.pcasd.com/us_not_going_down_japans_road

[Huckleberry]

It appears like this may be a good thread to restart.

Many well known economists (and even a few dissenting members of the Fed) are now starting to become highly interested/worried about the US economy becoming deflationary over the next year.

What are Piggs experiences and thoughts regarding what they’re seeing and reading?

Rich, I know you recently wrote an article expressing your view and the low probability of this. Do you still stand by your assessment/analysis?
http://www.pcasd.com/us_not_going_down_japans_road

[Huckleberry]

It appears like this may be a good thread to restart.

Many well known economists (and even a few dissenting members of the Fed) are now starting to become highly interested/worried about the US economy becoming deflationary over the next year.

What are Piggs experiences and thoughts regarding what they’re seeing and reading?

Rich, I know you recently wrote an article expressing your view and the low probability of this. Do you still stand by your assessment/analysis?
http://www.pcasd.com/us_not_going_down_japans_road

[Huckleberry]

It appears like this may be a good thread to restart.

Many well known economists (and even a few dissenting members of the Fed) are now starting to become highly interested/worried about the US economy becoming deflationary over the next year.

What are Piggs experiences and thoughts regarding what they’re seeing and reading?

Rich, I know you recently wrote an article expressing your view and the low probability of this. Do you still stand by your assessment/analysis?
http://www.pcasd.com/us_not_going_down_japans_road

[Huckleberry]

It appears like this may be a good thread to restart.

Many well known economists (and even a few dissenting members of the Fed) are now starting to become highly interested/worried about the US economy becoming deflationary over the next year.

What are Piggs experiences and thoughts regarding what they’re seeing and reading?

Rich, I know you recently wrote an article expressing your view and the low probability of this. Do you still stand by your assessment/analysis?
http://www.pcasd.com/us_not_going_down_japans_road

[CA renter]

IMHO, they’ve been worried about deflation for **years.** That’s why Greenspan dropped the FFTR to 1% and why we’re sitting a ZERO now. 🙁 It’s why they’ve printed trillions of dollars to buy MBSs and Treasuries and why they’ve backed/bought trillions more. We ARE in a deflationary environment, and the fear of (hyper)inflation is a result of their trying to fight it.

I wish they would understand that they will have to print more and more over time to get smaller inflationary results over shorter periods of time, but they refuse to acknowledge that reality. Until and unless they grasp what’s going on, we can only know that they will continue with their attempts to destroy our purchasing power.

[CA renter]

IMHO, they’ve been worried about deflation for **years.** That’s why Greenspan dropped the FFTR to 1% and why we’re sitting a ZERO now. 🙁 It’s why they’ve printed trillions of dollars to buy MBSs and Treasuries and why they’ve backed/bought trillions more. We ARE in a deflationary environment, and the fear of (hyper)inflation is a result of their trying to fight it.

I wish they would understand that they will have to print more and more over time to get smaller inflationary results over shorter periods of time, but they refuse to acknowledge that reality. Until and unless they grasp what’s going on, we can only know that they will continue with their attempts to destroy our purchasing power.

[CA renter]

IMHO, they’ve been worried about deflation for **years.** That’s why Greenspan dropped the FFTR to 1% and why we’re sitting a ZERO now. 🙁 It’s why they’ve printed trillions of dollars to buy MBSs and Treasuries and why they’ve backed/bought trillions more. We ARE in a deflationary environment, and the fear of (hyper)inflation is a result of their trying to fight it.

I wish they would understand that they will have to print more and more over time to get smaller inflationary results over shorter periods of time, but they refuse to acknowledge that reality. Until and unless they grasp what’s going on, we can only know that they will continue with their attempts to destroy our purchasing power.

[CA renter]

IMHO, they’ve been worried about deflation for **years.** That’s why Greenspan dropped the FFTR to 1% and why we’re sitting a ZERO now. 🙁 It’s why they’ve printed trillions of dollars to buy MBSs and Treasuries and why they’ve backed/bought trillions more. We ARE in a deflationary environment, and the fear of (hyper)inflation is a result of their trying to fight it.

I wish they would understand that they will have to print more and more over time to get smaller inflationary results over shorter periods of time, but they refuse to acknowledge that reality. Until and unless they grasp what’s going on, we can only know that they will continue with their attempts to destroy our purchasing power.

[CA renter]

IMHO, they’ve been worried about deflation for **years.** That’s why Greenspan dropped the FFTR to 1% and why we’re sitting a ZERO now. 🙁 It’s why they’ve printed trillions of dollars to buy MBSs and Treasuries and why they’ve backed/bought trillions more. We ARE in a deflationary environment, and the fear of (hyper)inflation is a result of their trying to fight it.

I wish they would understand that they will have to print more and more over time to get smaller inflationary results over shorter periods of time, but they refuse to acknowledge that reality. Until and unless they grasp what’s going on, we can only know that they will continue with their attempts to destroy our purchasing power.

[briansd1]

I predicted before a long period of stagnation, but not outright deflation because we still enjoy population growth (which Japan does not have).

Globalization is allowing other countries to catch up with us as technology transfer is very easy these days.

Emerging markets getting richer does not however mean that we’ll get poorer. But the gap will narrow, especially for the unskilled workforce.

Fed, Citing Slowdown, to Buy U.S. Debt
By SEWELL CHAN

WASHINGTON — The Federal Reserve acknowledged on Tuesday that its confidence in the economic recovery had dimmed, and announced that it would use the proceeds from its huge mortgage-bond portfolio to buy long-term Treasury securities.

Saying it would buy relatively modest amounts of government debt, analysts said the Fed signaled that it had no intention to back away from steps that it took, starting in 2007, to prop up the financial and housing markets. While the central bank held off on taking more aggressive steps, like a new, huge round of asset purchases, it left open the possibility that additional easing of monetary policy could take place in the fall if the recovery were to continue to weaken.

[briansd1]

I predicted before a long period of stagnation, but not outright deflation because we still enjoy population growth (which Japan does not have).

Globalization is allowing other countries to catch up with us as technology transfer is very easy these days.

Emerging markets getting richer does not however mean that we’ll get poorer. But the gap will narrow, especially for the unskilled workforce.

Fed, Citing Slowdown, to Buy U.S. Debt
By SEWELL CHAN

WASHINGTON — The Federal Reserve acknowledged on Tuesday that its confidence in the economic recovery had dimmed, and announced that it would use the proceeds from its huge mortgage-bond portfolio to buy long-term Treasury securities.

Saying it would buy relatively modest amounts of government debt, analysts said the Fed signaled that it had no intention to back away from steps that it took, starting in 2007, to prop up the financial and housing markets. While the central bank held off on taking more aggressive steps, like a new, huge round of asset purchases, it left open the possibility that additional easing of monetary policy could take place in the fall if the recovery were to continue to weaken.

[briansd1]

I predicted before a long period of stagnation, but not outright deflation because we still enjoy population growth (which Japan does not have).

Globalization is allowing other countries to catch up with us as technology transfer is very easy these days.

Emerging markets getting richer does not however mean that we’ll get poorer. But the gap will narrow, especially for the unskilled workforce.

Fed, Citing Slowdown, to Buy U.S. Debt
By SEWELL CHAN

WASHINGTON — The Federal Reserve acknowledged on Tuesday that its confidence in the economic recovery had dimmed, and announced that it would use the proceeds from its huge mortgage-bond portfolio to buy long-term Treasury securities.

Saying it would buy relatively modest amounts of government debt, analysts said the Fed signaled that it had no intention to back away from steps that it took, starting in 2007, to prop up the financial and housing markets. While the central bank held off on taking more aggressive steps, like a new, huge round of asset purchases, it left open the possibility that additional easing of monetary policy could take place in the fall if the recovery were to continue to weaken.

[briansd1]

I predicted before a long period of stagnation, but not outright deflation because we still enjoy population growth (which Japan does not have).

Globalization is allowing other countries to catch up with us as technology transfer is very easy these days.

Emerging markets getting richer does not however mean that we’ll get poorer. But the gap will narrow, especially for the unskilled workforce.

Fed, Citing Slowdown, to Buy U.S. Debt
By SEWELL CHAN

WASHINGTON — The Federal Reserve acknowledged on Tuesday that its confidence in the economic recovery had dimmed, and announced that it would use the proceeds from its huge mortgage-bond portfolio to buy long-term Treasury securities.

Saying it would buy relatively modest amounts of government debt, analysts said the Fed signaled that it had no intention to back away from steps that it took, starting in 2007, to prop up the financial and housing markets. While the central bank held off on taking more aggressive steps, like a new, huge round of asset purchases, it left open the possibility that additional easing of monetary policy could take place in the fall if the recovery were to continue to weaken.

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