Nothing! I don’t care what the Fed says. For instance, on Saturday, October 16, 2010, Eric Rosengren, President of the Federal Reserve Bank of Boston, stated that “Policymakers must act vigorously to counteract the risk of deflation.”
In the first place, I don’t consider Fed statements as being believable, given its track record. In regard to its track record, let’s look at its recent creditability.
1. March 28, 2007 (Ben Bernanke: “At this juncture … the impact on the broader economy and financial markets of the problems in the subprime markets seems likely to be contained.”)
2. October 15, 2007 (Ben Bernanke: “It is not the responsibility of the Federal Reserve – nor would it be appropriate – to protect lenders and investors from the consequences of their financial decisions.”)
3. June 9, 2008 (Ben Bernanke: (“Despite a recent spike in the nation’s unemployment rate, the danger that the economy has fallen into a substantial downturn appears to have waned.”)
Ok, you now know how I feel about the Fed. Now, what is deflation? Deflation is simply a decline in prices. Simple enough, but what causes a decline in prices? From “Basic Economics 101,” it is caused by either a decrease in demand or an increase in supply or some combination of the two. Nothing diabolic at all, just a shift in the demand and/or supply curves. Therefore, as a consumer, I like to see lower prices, because my purchasing power goes up. In other words, cash is king.
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