WASHINGTON (MarketWatch) -- The Federal Reserve should buy more Treasury securities if inflation dips lower, rather than lengthening its existing promise to keep rates low for an extended period, said James Bullard, the president of the St. Louis Federal Reserve Bank on Thursday. In a research report, Bullard said the U.S. is closer than it has ever been to a threat of Japan-like deflation. To respond to the deflation threat with a revised promise to keep rates 'low for longer' may be counterproductive because it might simply encourage permanent low interest rates, he said. "A better policy response to a negative shock is to expand the quantitative easing program through the purchase of Treasury securities," Bullard said. http://www.marketwatch.com/story/feds-bullard-backs-more-asset-purchases-if-needed-2010-07-29 QE II in preparation...
No matter what happens whenever there is the slightest hint of a downturn again the excuse will be they didnt print enough money. Just print 500 trillion $ bail everyone out, send everyone a fat check and see the economy boom as never before.
there is nothing terrible in deflation maybe some debtors like you would be bankrupted but I could live with that
I tend to agree, however too much deflation could be/will be devastating to the overall economy. Most people are extremely in debt and would get crushed especially the no money down home buyers that overextended further precipitating the free fall in home prices.
I think the Fed fears deflation because they don't know how to fight it. Given a choice, I'm sure they would rather deal with inflation than deflation.
Remember... Japan had a 20% savingsrate when they started their decade long deflationary bear... It went to 3% today or something of that magnitude..... The US had a negative savingsrate starting their slump... They do have a press and big guns ofcourse. That should help somewhat.