Wednesday, December 17, 2008

Deflation Paranoia strikes deep...

Into your heart it may creep
Starts when you're always afraid
Step out of line
The man come and take you away
Apologies to Buffalo Springfield

I've been avoiding many posts about the economy, to avoid depressing me and my readers, and to avoid contributing to the general paranoia that seems to have gripped the country.  But apparently the Fed is pretty concerned...instead of dropping the fed fund rate a 1/2 point down to .5, it dropped it essentially down to zero.

MarketWatch reports that the Labor Department released figures yesterday showing U.S. consumer prices fell in November at the fastest rate since 1932, the darkest days of the Great Depression. The U.S. consumer price index fell by a seasonally adjusted 1.7%, the biggest drop since the government began adjusting the CPI for seasonal factors in 1947. On a non-seasonally adjusted basis, the CPI fell by 1.9%, the biggest decline since January 1932, at the nadir of the Great Depression. The seasonally adjusted core CPI was flat in November. Apparently, both the CPI and the Core CPI were worse than economists had expected.  Economists surveyed by MarketWatch were expecting the CPI to fall by 1.4%. They forecast that the core CPI would rise by 0.1%.

The drop is fueled by plummeting energy prices, housing prices, and transportation prices.  Energy prices declined by a seasonally adjusted 17%, the most since February 1957. Gasoline prices plunged by 29.5% in November, the most since the government began keeping records in February 1967. Fuel oil prices dropped by 7.2%. Commodities prices declined by 4.1% in November.  Transportation prices  dropped 9.8% in November, the most in 61 years.  New vehicle prices fell 0.6%.  Airline fares, meanwhile, dropped 4%. Housing starts fell by a whopping 18.9% to a seasonally adjusted annual rate of 625,000, the lowest since the department began keeping records in 1959.

Certainly those of us who have secure jobs and salaries, and tenured law professors are pretty close to the top of that list, may actually profit from this scenario.  But,'s still scary.

Now, for the chorus....
Its time we stop, hey, what's that sound
Everybody look what's going down.

Economics | Permalink

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