In the past FED worried about inflation, but it did not know that deflation is a big
nightmare for the economy and it is much much more dangerous and destructive.
In an inflationary environment, we have less supply but more demand, and producers
had unlimited market to sell their products, which means full employment. The price of goods go up every year, but the salary is also raised every year, and companies have much room to increase the price and profit margin to maintain the high salary structure. and the economy continues to grow to a higher level every year.
In a deflationary environment, we have more supply than demand, and producers have to cut price to compete for the limited market to an extend that the producers will
not have any profit by selling products , and the more they sell the more they lose.
To survive in the competitive market, the producers will eventually mess lay off their employees, and eventually mess bankruptcy, and the economic activities stop completely.
The US can not expect we will completely immune to the world economic down turn. Thinking about that 30% of our products are exported, if the overseas consumers stop buying our products, which means 30% of the US workers will lose
their jobs, and the rest of the 70% of US workers will lose their confidence about the future completely and will reduce their spendings significantly, this will reduce the
economic activities here in the US to a dangerous level , and push the domestic economy into a big depression. |
