Deflation
in sentence
696 examples of Deflation in a sentence
This will fuel more global
deflation
and private and public debt defaults in debtor countries, which will ultimately undermine creditor countries’ growth and wealth.
Ireland’s greatest weapon against the ensuing debt
deflation
was its ability to attract US-based tech giants, by offering them a combination of EU law, a well-trained English-speaking workforce, and a 12.5% corporate-tax rate.
The discovery of gold in California in the mid-nineteenth century, and in Alaska, South Africa, and Australia 50 years later, also produced mild inflation, while the absence of such new discoveries in the 1870’s and 1880’s led to mild
deflation.
Deflation
that emanates from the financial sector is lethal.
There is a further reason why
deflation
is such a threat, and why policymakers setting out to eliminate it have a much tougher task than inflation fighters: all prices do not move down; in particular debts do not adjust because they are fixed in nominal terms.
Inflation and
deflation
of debts produce very different outcomes.
In the interwar Great Depression, the economist Irving Fisher accurately described the process of debt deflation, in which lenders, worried by the deterioration of their asset quality, called in their loans, pushing borrowers to liquidate assets.
The political response to
deflation
is to call for a stronger state.
Dealing with
deflation
is impossible within the bounds of normal market operations.
The Great Depression produced more alarming outcomes, as the political response to
deflation
throughout Central Europe and Latin America destroyed the prevailing order, including several democracies.
Indeed, as governments scramble to respond to the current crisis, we should remember that
deflation
tends to produce not only radical anti-capitalism, but also a profound hostility to any kind of economic or political organization.
Given the massive deleveraging of public- and private-sector debt that lies ahead, and my continuing cynicism about the US political and legal system’s capacity to facilitate workouts, two or three years of slightly elevated inflation strikes me as the best of many very bad options, and far preferable to
deflation.
The Japanese scare story of the 1990s, in which monetary and fiscal policy prove powerless in the face of a sustained deflation, is the economic trauma now used to rationalize Bush's vast 10-year program of tax cutting.
But the combination of crisis and austerity condemned China to several years of
deflation
and considerably slower growth.
That capacity, described by Knut Wicksell in Interest and Prices, can sometimes support useful reflation; at other times, it can produce harmful inflation; at still others, harmful post-crisis
deflation
may result, as credit and money are destroyed.
But in periods of
deflation
(when prices are falling), like those encountered in Greece and in Cyprus today, R can be deeply misleading.
In the following year (Year 3), the recession deepened, with a further 2.04% drop in money income (from 98 to 96) and an even larger fall in prices as
deflation
hit 6.06%.
But no one should be fooled by statistical legerdemain: Focusing on real national income data during a period of
deflation
is merely an effort to repackage an economic depression as a great success story.
The problem is that most economies are now barely bottoming out, so reversing the fiscal and monetary stimulus too soon – before private demand has recovered more robustly – could tip these economies back into
deflation
and recession.
But the truth is that the risk of a “bad”
deflation
– that is, a self-reinforcing downward spiral in prices, wages, and economic performance – has never existed for the eurozone as a whole.
Although the Governing Council seems convinced that expansionary policies remain vital to support GDP and employment growth, and to keep
deflation
at bay, that seems unlikely.
Fed Chairman Ben Bernanke has suggested that such “helicopter money” would be a viable tool for the BOJ and other central banks to use to fight
deflation
– a statement that earned him the moniker “Helicopter Ben.”
Given the deflationary impact of a stronger currency – and the Fed’s general intolerance of
deflation
– there is good reason to believe that the Fed will exercise caution in raising interest rates.
Central banks would be tasked with preventing deflation, implying a major round of quantitative easing.
This has many wondering whether South Korea is headed for the kind of protracted
deflation
and stagnation that characterized Japan’s so-called “lost decades,” from which it is just beginning to emerge.
But the more immediate problem remains deflation, given high unemployment and excess capacity.
As concerns about
deflation
replaced fear of inflation, gold prices started to fall with the correction in commodity prices.
First, while we are still in a world of global deflation, large, monetized fiscal deficits are fueling concerns over medium-term inflation.
Nor is it clear why investors should stock up on gold if the global economy dips into recession again and concerns about a near depression and rampant
deflation
rise sharply.
The challenge for central banks is to try to boost inflation, if not avoid outright
deflation.
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