Busy Bee
06-05-2008, 05:11 PM
Just as the credit crunch seems to be ending, the world faces a much more serious economic threat: the explosion of oil prices and the possibility of a return to 1970s-style inflation. Inflation is a more dangerous economic ill than deflation because it is so much harder to cure. Falling prices can be cured easily enough. All governments and central banks have to do is cut interest rates, cut taxes and boost public spending. These are popular steps that readily win political and business support.
The policies required to deal with inflation are, by contrast, always painful and unpopular - raising interest and taxes; cutting government spending and curbing public employees' pay. It is hardly surprising, therefore, that only one country in the world - Japan - has faced a serious deflation problem since the 1930s, while inflation crises have afflicted every market economy in the postwar era and have triggered almost every big recession since 1945. The question, now that the focus of attention is moving beyond the credit crunch, is whether this sad history is likely to repeat itself in the year or two ahead.
http://tinyurl.com/5wbtqt
The policies required to deal with inflation are, by contrast, always painful and unpopular - raising interest and taxes; cutting government spending and curbing public employees' pay. It is hardly surprising, therefore, that only one country in the world - Japan - has faced a serious deflation problem since the 1930s, while inflation crises have afflicted every market economy in the postwar era and have triggered almost every big recession since 1945. The question, now that the focus of attention is moving beyond the credit crunch, is whether this sad history is likely to repeat itself in the year or two ahead.
http://tinyurl.com/5wbtqt