LG, re: BK thread post. first let me say that there is 'good' deflation and 'bad' deflation. deflation that results from more competitiveness because of free trade,higher productivity because of technological progress,etc. is 'good' deflation. this is because it benefits the consumer,i.e. us, and spawns even more innovation and progress. 'bad' deflation is the one that results from massive industrial overcapacities, lack of demand and a solvency crisis that makes debtors unable to repay their debts, thus threatening the viability of the banking system and creating a credit crunch. this is what Japan is currently experiencing. there is a simple way to find out whether 'bad' deflation is threatening the system: just watch how the stock market reacts to economic data, like for instance the employment report. if the market reacts positively to a 'weak' report, it is scared of inflation. conversely, if a 'strong' report elicits a positive reaction, either zero inflation or actual deflation can be assumed to reign. at the moment 'weak' reports are greeted positively by the market, therefore no deflation threat currently exists.
regards,
hb |
