David Prosser: Flat Earthers take note: deflation is the enemy
Thursday 18 November 2010
Outlook So what do Sarah Palin and the gang that the Princeton University professor Alan Blinder describes as the "economic equivalent of the Flat Earth Society" make of the latest US inflation figures? Their terror is that the Federal Reserve's decision last month to begin another round of quantitative easing will send inflation soaring. Well, not so far. The figure for October was 0.6 per cent, the lowest rate recorded since records began in 1957.
QE2 has become uncomfortably political. The Right in the US can't bear this sort of statist interventionism, while countries such as Germany and China resent the depressive impact the initiative will have on the dollar.
Away from the politics, however, the economics are simple. QE2 represents the US's best shot at avoiding the sort of deflation that resulted in the debilitation of Japan's economy for more than a decade. And as of today, deflation is a more real and present danger than the hyper-inflation Ms Palin and co so fear.
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