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"I Can't Believe It! Greenspan Is Finally Concerned About Deflation!"

June 25, 2003


About three weeks ago in a May 7th article in the Wall Street Journal, I almost fell off my chair as I read the following title from an article by Greg Ip:  "In a Shift, Fed Signals Concern Over Deflation: Central Bank Leaves Rates Unchanged, but It Cites Possible 'Fall in Inflation'."

Uh, hello!!!!!  You mean the Fed, led by Alan Greenspan (again, I implore you, Mr. President, reconsider your decision to appoint Greenspan to another term as Fed Chairman!), has finally realized that the "boogey man of inflation" is dead?  Greenspan now says that the real possibility of deflation occurring is now a much greater threat.  What planet has he been living on for the last two years?  Alan Greenspan and his board of ignorant Economics 101 flunkies have had their heads buried in the sand like moronic ostriches.  The Fed's primary goal and the mainstay of Greenspan's economic philosophy had been until this time, to root out inflation from every nook and cranny.  The Wall Street Journal's May 7th article validated my view when it said the following:  "Since the end of WWII, Fed officials' primary goal has always been avoiding inflation or reining it in since inflation interferes with the smooth working economy and undermines confidence in the government."

Well, what do you think deflation does to the confidence of the economy, especially to business profits and to investment by individuals who are concerned that the bottom line is always dropping due to falling prices?  Look at the history of deflation in this country during the Great Depression and the disastrous effects of falling prices.  Alan Greenspan's paranoia, as I have written earlier, is responsible to a large degree, for the current deflationary period in many sectors of our economy today.  Of course, we are not in a totally deflationary situation at the present time, but the Fed's view that deflation is "highly unlikely" is wishful thinking, to say the very least.

The Wall Street Journal article further correctly points out that the economy "has stalled for months and payrolls have declined by 525,000 over the last three months."  The Fed is almost out of ammo, as the Federal Funds Rate is already at a historic low of 1.25%.  In the next Fed meeting this month, they will probably lower rates again to attempt to spur economic growth, yet not much is likely to happen.  Why will lowering interest rates AGAIN not have the desired outcome?  Poor consumer and business expectations about the future will probably dampen the effects of lower interest rates.  Yet, President Bush's recent victory in Congress of lowering taxes may rescue Greenspan from his useless tinkering with the American economy.  Even if the lowering of interest rates were to have the desired effects of stimulating the economy, there is still a danger in using monetary policy to affect aggregate demand.  What if demand picks up on its own and six months later, the lowering of interest rates, in a more optimistic time period, stimulates more borrowing then?  That "boogey-man of inflation" will return and you know what the Fed and old Alan Greenspan will do next!

As I pleaded in a past article, "Please Mr. President, reconsider your decision to appoint Alan Greenspan to another term as Chairman of the Federal Reserve."  Appoint someone who understands simple Economics 101 and who will support your pro-growth tax policies.

 

Copyright Copyright 2020 by Kim B. Deffenbaugh & America's Voices, Inc.  All rights reserved.
Kim B. Deffenbaugh is an educator, poet and high school guidance counselor in Indiana who recently began writing political commentary and poetry.  His work is published at www.poetsforthewar.org and on America's Voices.  You can e-mail him at kdeffenba@americasvoices.org.

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