Monday, February 22, 2010

WSJ: "Flat Prices Bode Well for Economy"

Here's a headline to conjure with: "Flat Prices Bode Well for Economy" (WSJ, Feb 20th).

How's that again? Deflation is good for growth? Have WSJ journalists ever read an economics textbook? Is the FOMC now following the BoJ by targeting deflation? Are they responding to a falling core CPI by raising the discount rate? 

Even Olivier Blanchard, chief economist at the IMF, is now advocating an inflation target of 4% inflation instead of 2% or (God forbid) "price stability".

So now it appears that the U. S. plan is to raise the discount rate (now), end quantitative easing (April), and impose a huge tax increase (January). This growth-and-jobs policy will sure be a shot in the arm!

It is only a matter of time until nominal GDP growth dips below zero (2Q10?) and federal and state tax receipts crater again. We should expect a widening deficit, rising unemployment and very weak profit growth. What a fiasco. Bail out now. (Not that I have the courage to sell.)

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