The Fed is worrying deflation like Japan. There are some similarities: 1. Housing market collapse. 2, population is aging (U.S. is much better than Japan); 3 Government is in serious deficit (Japanese people have lots of savings while Americans do not have). 3The labour market and wage are under pressure.
There are also differences: 1. U.S. is a consuming economy while Japan is an exporting economy. The importing prices will have a bigger impact on prices on U.S. than Japan. 2. China played a huge role for exporting lower prices goods in last 20 years which is being reversed now.
To me, the biggest reason why deflation won't happen in U.S. is simple: Japan experience huge inflation in 1980s. Even after 20 years of deflation and little inflation, Japanese consumer prices are still the highest in the world. It is the law of regressing to mean at work here. U.S. Prices are very reasonable and I will argue it is below the average in developed countries.
Fed should be very careful on printing more money. When inflation starts, it will spread quickly.
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