Quote:
Originally Posted by nmap
Deflation represents a mortal threat to the U.S. economy - as it does to any entity (individual, organization, or nation) that is heavily indebted. The Fed must inflate or the burden of our existing debt will become unsustainable, with default as the ultimate outcome.
In such a situation, expect novel approaches - these could include negative interest rates on savings (in order to stimulate spending), stimulus payments of every sort, or even Helicopter Ben's signature idea of dropping money from helicopters.
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Cheap money raises commodity prices.
High commodity prices stifle economic growth.
Low economic growth is deflationary.
Damned if you do, damned if you don't.
We may be heading towards an involuntary "Shmita".
(FWIW, the last "Shmita" year in Israel started in Sept/Oct 2007...that's when the fed funds rate started dropping
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