Friday, October 31, 2008

Deflation

From Nouriel Roubini to economists at Credit Suisse, everyone projects deflation over the next several months. Part of that is the decrease in aggregate demand part of that is the rapid appreciation of the dollar as people flee risk by buying U.S. Treasury bills that is making imports cheaper, and some of both of those have contributed to the collapse of oil prices.

As with inflation, there are winners and losers. Losers are people who are paying back loans and seeing the value of those payments rise in real terms. Winners are the people who made those loans. When the losers default on their now more-expensive loans, everyone loses.
(Roubini link and picture above HT: Greg Mankiw).

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