403 Forbidden


nginx
403 Forbidden

403 Forbidden


nginx
Follow us:
403 Forbidden

403 Forbidden


nginx

Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

March 17, 2010 at 9:40 AM

Behind today’s inflation numbers: How close we came to disaster

The unexpected drop in wholesale prices for February is being hailed as a sign that inflation is in check and the Fed can keep interest rates low.

The real lesson from today’s report is what a near-death-experience we had with 1930s-style deflation, arising out of the financial panic and the Great Recession. Deflation, a sustained drop in prices, would have driven the economy into full-out depression. For all his missteps, Fed Chairman Ben Bernanke was right to see deflation as a major threat and expand money supply to combat it.

That said, the Fed’s other sins await atonement: the secret deals with the big banks, the toxic assets hidden away (for now), and the fiasco with AIG and others among the Wall Street boyz. These total into the trillions, they allow continued bad behavior and have prevented unwinding of huge amounts of leverage, and they represent an ongoing threat to recovery. Even necessary and good steps have unintended consequences: Hence, the Fed’s expansion and easy credit policies have pumped the world economy full of hot money going into all manner of plays that have little to do with creating jobs or sustained productive enterprises. Meanwhile, the viability of U.S. debt means the Fed can’t base its interest-rate decisions purely on inflation data. The T-bonds will, after all, have to keep attracting investors.

So, two cheers for Bernanke? One cheer? We’ll see in a few years.

The Back Story: The Seattle-King County Building and Construction Trades Council and the M.L. King County Labor Council are set to hold a “jobs now” rally from 2 p.m. to 4 p.m. today at Westlake Park. The labor groups say unemployment in construction here is an unprecedented 35 percent. The protest will support more infrastructure investments to create jobs.

Today’s Econ Haiku:

So much for mellow

The medical pot sector

Has come under fire

Comments | More in Bailout, Inflation, Jobs/Unemployment

COMMENTS

No personal attacks or insults, no hate speech, no profanity. Please keep the conversation civil and help us moderate this thread by reporting any abuse. See our Commenting FAQ.



The opinions expressed in reader comments are those of the author only, and do not reflect the opinions of The Seattle Times.


403 Forbidden

403 Forbidden


nginx
403 Forbidden

403 Forbidden


nginx