It’s a classic paradox: We all want lower prices, but the economy might not be able to afford them in the long run. Merriam-Webster defines deflation as “a contraction in the volume of available money or credit that results in a general decline in prices.” And this is a bad thing.
As John W. Schoen of MSNBC writes, “If deflation were to take hold, the impact could be even worse than the 1970s inflation outbreak that devastated the economy and destroyed wealth for nearly a decade. Federal Reserve policymakers could find themselves in a tight spot. Just as higher interest rates are the antidote for inflation, lower rates are the government’s main weapon against deflation.”
I’m now singing the limbo song in my head: “How low can you go?”
All is not lost, however. At least not yet. To learn more, read the full text of Schoen’s article by clicking on the link below.