The belief that the impact of deflation on the tax system would be equal but opposite to the impact of inflation is mistaken. If deflation is persistent and substantial, riskless nominal interest rates will fall to zero. In that state, any tax based on nominal payments and receipts is equivalent to a cash flow income tax regardless of the IRC's timing rules. No timing issues arise from fluctuations in the deflation rate if the entire term structure of riskless nominal rates is flat at zero. Central banks are likely to react to the prospect or actual presence of deflation with an aggressive, inflation-biased monetary policy. For depreciable assets, US tax law specifies cost recovery that would approximate economic depreciation when inflation is 4%. Shifting from an inflationary environme...
Countries around the world have fallen into one of the deepest recessions since the Great Depression -- a recession exacerbated by a severe financial crisis. Policymakers have responded vigorously to the current crisis to prevent deflation. Some analysts warn that the US policy response might be too proactive and cause a subsequent surge in inflation. At the same time, other analysts advise that the policy response in many other countries might not be active enough to fend off deflation. The author shows how Taylor rules can be used to evaluate monetary policy. He then compares actual policy during past deflation scares -- in Japan in the 1990s and in the US in the 2000s -- with how policy would have been conducted using Taylor rules based, to the extent possible, on data available at t...
FORT LEE, N.J., Aug. 4 /PRNewswire/ -- According to the National Inflation Association - http://inflation.us - the amount of deflation rhetoric in the mainstream media has been continuing to surge this week. Yesterday there was an article in the Wall Street Journal entitled, "Defending Yourself Against Deflation" and on Monday Paul Krugman wrote an editorial in the New York Times entitled, "Why Is Deflation Bad?". We decided to do a simple Google News archive search to see when previous spikes in media chatter about the topic of deflation have taken place. The largest spike this decade in articles about deflation came in May of 2003. At that time, the Dow Jones was 8,500, the price of gold was $350 per ounce, and the price of oil was $30 per barrel. The Dow Jones went on to rise for fou...
NEW YORK, Dec. 9, 2010 /PRNewswire/ -- Credit Suisse's Total Commodity Return Strategy team today announced the release of a new white paper entitled, "How Commodities Can Help Investors Face the Uncertainty of the Inflation/Deflation Debate. (Logo: http://www.newscom.com/cgi-bin/prnh/20091204/CSLOGO )
It is often said that generals tend to fight the last war. Judging by their continued pronouncements about inflation risks, one has to wonder whether the same might not be said of central bankers. Despite ever-increasing signs that the global economy is in the grips of a vicious process of financial market de-leveraging and asset price deflation, central bankers continue to fret about the threat of rising price inflation. They do so at the very time they should be worrying about the risk that a deep and prolonged recession could raise the specter of deflation of the sort that long plagued the Japanese economy after the bursting of its asset price bubbles in 1989. Looking in the rearview mirror, there can be no doubt that over the last year inflation has risen to levels that must give ri...
In this erratic market, preoccupation with possible rising interest rates and inflation has flip-flopped to worries over an opposing force: deflation. Economists are debating whether deflation, or widespread falling prices, could become a threat. Concern has intensified as data, ranging from slowing factory orders to another downturn in home sales and consumer spending, have pointed to a weaker economy.
On the brink of producing the biggest comeback victory in Frank Beamer's 24 years as coach, 10th-ranked Virginia Tech watched it fade away. Quarterback Kellen Moore hit Austin Pettis for a 13-yard touchdown pass with 69 seconds left to lift No. 3 Boise State to a 33-30 victory at sold-out FedEx Field on Monday night. While the cardiac kids from Idaho won their 27th straight regular- season game dating to 2007, the Hokies lost their season opener for a third consecutive year. This loss, however, was much more bitter to swallow.
[...] our demand for money is a demand to hold money balances, and we care about the real purchasing power of those money balances - what they are capable of buying, not just what number is stamped on the bills. [...] the Fed's initial response to the troubles in the banking system in the fall of 2008 was to flood the system with reserves, remembering the mistakes the Fed made at the onset of the Great Depression.
WASHINGTON - Until recently, the idea that deflation - the decline of most prices - was possible, let alone a potential economic danger, seemed outlandish. If anything, inflation was the threat. Led by rising oil and food prices, it was increasing in most countries. But in the past two months, deflation has suddenly become conceivable, and though still a long shot, it's much more menacing than most people realize.
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