"Michael Hodges" : >But - to my way of thinking deflation will have arrived only if we >see negative CPIs, and if we do, will downward adjustments be made to >government employee wages and social security payouts? If not, then >even larger distortions are on the horizon.. Hi, You would be interested in the answer by Professor Brenner of McGill University to a question about deflation and negative CPI. It is near the end of Supply Side University Fall Semester Lesson#10 (link from by web page economics section) Several other of the lessons deal with inflation and deflation. NEW INSIGHT ON CPI AND DEFLATION. Events of the past year suggest to me that the CPI index over estimates inflation by even MORE than the Boskin Report's estimate of 1%!!! Why? Because the CPI is still giving an inflation rate of about 2% for the past year, when it is now clear to ME (I suppose many of you many still not see this ;-) that we are now into a stage of mild DEFLATION. Why DEFLATION? The fall in gold, oil, and other prices combined with the "crisis" in Asia and South America tell me this. Much of the troubles in Asia and other places have been attributed to "bad loans" made years ago. But a factor in this is that many currencies around the world are (or until recently were) linked to the US dollar. The Hong Kong Dollar, and the money of Egypt Brazil, etc. are (or were) "pegged" to the dollar. When the US dollar INCREASED in "value" (deflation) other currencies were drawn up with it. Loans that would have been good if paid off in money of equal (or lesser) value currency became "BAD" when they had to be paid in money of greater value. But many have failed to see the deflation because the CPI says we are still in a state of INFLATION by some 2%. But I think decades of economic teaching were correct; the CPI is "wrong", and the failure to understand this could push the global economy into a recession. ,,,,,,, _______________ooo___(_O O_)___ooo_______________ (_) jim blair (jeblair@facstaff.wisc.edu) Madison Wisconsin USA. This message was brought to you using biodegradable binary bits, and 100% recycled bandwidth. From: oldnasty@mindspring.com (Grinch) Newsgroups: soc.culture.brazil, sci.econ References: 1 , 2 Jim Blair wrote: >On 22 Feb 1999, Ricardo C. Amaral wrote: > >>The main article on the current issue of "The Economist" magazine >>is about the big "D" (DEFLATION). >>The article give an analysis of deflationary forces going on around the >>world. >>My question is: how can Brazil increase prices when we have a major >>over supply of everything around the world ? Krugman has a new article on his web site about deflation, when it's bad and when it's not. "Can Deflation Be Prevented?" at http://web.mit.edu/krugman/www/whatsnew.html He explains why oversupply of goods is not the problem with deflation, in spite of the fact that it intuitively seems so to so many. >Hi, >This relates to a debate in economics about the accuracy (or possible >bias) in the US Consumer Price Index (CPI)..... > >But from many other indicators, the US and the world are actually in a >stage of mild deflation. Kind of interestingly, theory indicates that the optimum monetary policy goal is not price stability, but deflation sufficient to reduce the basic interest rate to zero. A couple of papers from the Fed on this, and whether it has any practical importance in the real world: "Zero Nominal Interest Rates: Why They're Good and How to Get Them" http://research.mpls.frb.fed.us/research/qr/qr2221.html "Zero Inflation and the Friedman Rule: A Welfare Comparison" http://www.Rich.FRB.org/eq/fall97/fall97ab.html AND: William F. Hummel wrote: >... In any case, even a mild deflation > is generally recognized as walking near the precipice. I think > most of the BOG at the Fed acknowledge this, although some of > their staff economists are hard core on a zero inflation target. .... > When the Fed presents papers by its economists along these lines, > it gets pretty scary. Hi, And in case this is not completely obvious: if the target is "zero inflation" DEFINED TO MEAN A ZERO INCEASE IN THE CPI, and IF the CPI has a bias of 1 or 2 percent (as claimed by the Boskin Commission), then the inflation rate for the past 2 years has "really" been zero BECAUSE the CPI has registered a 1 to 2% annual increase. If Boskin actually undersstimated the bias by a percent, then we are already "walking near the precipice", and attempts to further "reduce inflation" could put us "over the edge". Of course when the Boskin Report was presented, many of you rushed forward to say that it was all wrong, and that the CPI does not overestimate inflation, so don't worry, be happy ;-) -- ,,,,,,, _______________ooo___(_O O_)___ooo_______________ (_) jim blair (jeblair@facstaff.wisc.edu) For a good time call http://www.geocities.com/capitolhill/4834