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Politics : PRESIDENT GEORGE W. BUSH
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To: Zoltan! who wrote (223624)1/30/2002 12:43:51 PM
From: DMaA  Read Replies (1) of 769670
 
There is widespread and general confusion about what inflation is. I don't think the example below has anything to do with inflation/deflation. If the price of palladium dropped because demand dropped because technology has advanced so that we need less to do the same job, that is not a sign we are beset by a deflation.

Inflation is a monetary phenomenon. If prices drop because there is too little money in the system, that is bad. If prices drop because productivity increases, that is double plus good.

While Ford should have hedged its inventory investment, the real problem was that it misunderstood deflation. Technology and Ford's own research labs were inventing catalytic converters that use less palladium. Hard as it is to believe, this technology-driven deflation still catches businesses off-guard. It also baffles the Fed, which followed an excessively tight monetary policy thinking that growth creates inflation even though non-energy prices remained stagnant.
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