VoyForums
[ Show ]
Support VoyForums
[ Shrink ]
VoyForums Announcement: Programming and providing support for this service has been a labor of love since 1997. We are one of the few services online who values our users' privacy, and have never sold your information. We have even fought hard to defend your privacy in legal cases; however, we've done it with almost no financial support -- paying out of pocket to continue providing the service. Due to the issues imposed on us by advertisers, we also stopped hosting most ads on the forums many years ago. We hope you appreciate our efforts.

Show your support by donating any amount. (Note: We are still technically a for-profit company, so your contribution is not tax-deductible.) PayPal Acct: Feedback:

Donate to VoyForums (PayPal):

Login ] [ Contact Forum Admin ] [ Main index ] [ Post a new message ] [ Search | Check update time | Archives: 123[4]5678910 ]


[ Next Thread | Previous Thread | Next Message | Previous Message ]

Date Posted: Saturday, November 01, 11:53:15am
Author: John T Cella
Subject: front page in today's NYTimes

Get Home Delivery Log In Register Now
TimesPeople
Home Page My Times Today's Paper Video Most Popular Times Topics
Search All NYTimes.com

Economy
World U.S. N.Y. / Region Business Technology Science Health Sports Opinion Arts Style Travel Jobs Real Estate Autos Search Business
Financial Tools
Select a Financial Tool Mutual Funds Analysis Tools Portfolio Alerts More in Business »

World Business Markets Economy DealBook Media & Advertising Small Business Your Money
Specter of Deflation Lurks as Global Demand Drops
Agence France-Presse — Getty Images
The Mansfield Manufacturing plant in Dongguan, China. The global economic crisis is threatening the country’s factory jobs.

Sign In to E-Mail or Save This
Print
Single Page
Reprints
Share
Linkedin
Digg
Facebook
Mixx
Yahoo! Buzz
Permalink


By PETER S. GOODMAN
Published: October 31, 2008
As dozens of countries slip deeper into financial distress, a new threat may be gathering force within the American economy — the prospect that goods will pile up waiting for buyers and prices will fall, suffocating fresh investment and worsening joblessness for months or even years.

Skip to next paragraph
Related
Times Topics: Credit Crisis — The EssentialsThe word for this is deflation, or declining prices, a term that gives economists chills.

Deflation accompanied the Depression of the 1930s. Persistently falling prices also were at the heart of Japan’s so-called lost decade after the catastrophic collapse of its real estate bubble at the end of the 1980s — a period in which some experts now find parallels to the American predicament.

“That certainly is the snapshot of the risk I see,” said Robert J. Barbera, chief economist at the research and trading firm ITG. “It is the crisis we face.”

With economies around the globe weakening, demand for oil, copper, grains and other commodities has diminished, bringing down prices of these raw materials. But prices have yet to decline noticeably for most goods and services, with one conspicuous exception — houses. Still, reduced demand is beginning to soften prices for a few products, like furniture and bedding, which are down slightly since the beginning of 2007, according to government data. Prices are also falling for some appliances, tools and hardware.

Only a few months ago, American policy makers were worried about the reverse problem — rising prices, or inflation — as then-soaring costs for oil and food filtered through the economy. In July, average prices were 5.6 percent higher than a year earlier — the fastest pace of inflation since 1991. But by the end of September, annual inflation had dipped to 4.9 percent and was widely expected to go lower.

The new worry is that in the worst case, the end of inflation may be the beginning of something malevolent: a long, slow retrenchment in which consumers and businesses worldwide lose the wherewithal to buy, sending prices down for many goods. Though still considered unlikely, that would prompt businesses to slow production and accelerate layoffs, taking more paychecks out of the economy and further weakening demand.

The danger of this is the difficulty of a cure. Policy makers can generally choke off inflation by raising interest rates, dampening economic activity and reducing demand for goods. But as Japan discovered, an economy may remain ensnared by deflation for many years, even when interest rates are dropped to zero: falling prices make companies reluctant to invest even when credit is free.

Through much of the 1990s, prices for property and many goods kept falling in Japan. As layoffs increased and purchasing power declined, prices fell lower still, in a downward spiral of diminishing fortunes. Some fear the American economy could be sinking toward a similar fate, if a recession is deep and prolonged, as consumers lose spending power just as much of Europe, Asia and Latin America succumb to a slowdown.

“That’s a meaningful risk at this point,” said Nouriel Roubini, an economist at New York University’s Stern School of Business, who forecast the financial crisis well in advance and has been warning of deflation for months. “We could get into a vicious circle of deepening malaise.”

Most economists — Mr. Roubini and Mr. Barbera included — say American policy makers have tools to avert the sort of deflationary black hole that captured Japan. Deflation fears last broke out in the United States in 2003, but the Federal Reserve defeated the menace with low interest rates that kept the economy growing. This time, the Fed is again being aggressive, dropping its target rate to 1 percent this week. And the government’s various bailout plans have also pumped money into the economy.

“If you print enough money, you can create inflation,” said Kenneth S. Rogoff, a former chief economist at the International Monetary Fund and now a professor at Harvard.

But even as American authorities unleash credit, the threat has intensified. Not since the Depression have so many countries faced so much trouble at once. The financial crisis has gone global, like a virus mutating in the face of every experimental cure. From South Korea to Iceland to Brazil, the pandemic has spread, bringing with it a tightening of credit that has starved even healthy companies of finance.

“We’re entering a really fierce global recession,” Mr. Rogoff said. “A significant financial crisis has been allowed to morph into a full-fledged global panic. It’s a very dangerous situation. The danger is that instead of having a few bad years, we’ll have another lost decade.”

1 2 Next Page »
Specter of Deflation Lurks as Global Demand Drops
Sign In to E-Mail or Save This
Print
Single Page
Reprints
Share
Linkedin
Digg
Facebook
Mixx
Yahoo! Buzz
Permalink


Published: October 31, 2008
(Page 2 of 2)



Global economic growth has flourished in recent years, much of it fertilized with borrowed investment. This raised kingdoms of houses in Florida and California, steel mills in Ukraine, slaughterhouses in Brazil and shopping malls in Turkey.

Skip to next paragraph
Related
Times Topics: Credit Crisis — The EssentialsThat tide is now moving in reverse. Banks and other financial institutions are reckoning with hundreds of billions of dollars worth of disastrous investments. As they struggle to rebuild their capital, they are halting loans to many customers, demanding swift repayment from others and dumping assets — homes sold out of foreclosure, investments linked to mortgages and corporate loans. Selling is pushing prices down further, making the assets left on balance sheets worth less, in some cases prompting another round of sales.

“You get this adverse feedback loop where assets keep falling in value,” Mr. Barbera said. “You’re essentially putting big downward pressure on the global economy.”

In past crises, like those that devastated Mexico in 1994 and much of Asia in 1997 and 1998, weak economies managed to recover by exporting aggressively, not least to the United States. But American consumers are battered this time. After years of borrowing against homes and tapping credit cards, consumers are pulling back.

From Asia to Latin America, exports are slowing and should continue to do so as the global appetite shrinks. This is spawning fears that major producers like China and India — which vastly expanded production capacity in recent years — will have to dump products on world markets to keep factories running and stave off unemployment, pressing prices lower.

Earlier this year, some analysts suggested that American businesses might continue to prosper, even as consumers pulled back at home, by selling into foreign markets. Caterpillar, the construction equipment manufacturer, might suffer declining sales in the United States, the argument went, but huge projects from Russia to Dubai required front-end loaders. Australia and Brazil needed earth-movers to expand mining operations as they sent iron ore toward smelters in Northeast Asia.

But as much of the planet now struggles, Caterpillar is worried. “Next year, no doubt, will be a challenge,” Caterpillar’s chief executive, James W. Owens, recently warned.

China has long been at the center of claims that the world could keep growing regardless of American troubles. China has been importing cotton from India and the United States; electronics components from South Korea, Malaysia and Taiwan; timber from Russia and Africa; and oil from the Middle East.

But many of the finished goods China produces with these materials have ultimately landed in the United States, Europe and Japan. When consumers pull back in those countries, Chinese factories feel the impact, along with their suppliers around the globe.

Fewer laptop computers shipped from China spells less demand for chips. Last week, Toshiba — Japan’s largest chip maker — said it lost $275 million from July to September, blaming its troubles on a world glut.

Lower demand for flat-screen televisions means less need for flat-panel glass displays. This month, Samsung, the Korean electronics giant, said a global oversupply in that item caused its biggest dip in quarterly profits in three years.

Now, a glut of products may be building in the United States. Orders for trucks used by business have plummeted. Investments in industrial equipment are declining. Yet inventories have grown.

“I worry about an economy that looks like Japan,” said Barry P. Bosworth, a senior fellow at the Brookings Institution. “We’re going to be struggling with how to put this back together again for several more years.”

« Previous Page1 2
More Articles in Business » A version of this article appeared in print on November 1, 2008, on page A1 of the New York edition. Need to know more? 50% off home delivery of The Times.
Ads by Google what's this?

Protect Your Investments
Gold Bullion Holds its value. Learn more from industry experts.
BlanchardOnline.com
Is Your Bank In Trouble?
Free list Of Banks Doomed To Fail. The Banks and Brokers X List. Free!
www.MoneyAndMarkets.com
The Coming US Recession
What does it mean for our finances? How long will it last? Free report
www.MoneyMorning.com/us_recession


Past Coverage
A Rate of Zero Percent From the Fed? Some Analysts Say It Could Be Coming (October 30, 2008)
ECONOMIC VIEW; But Have We Learned Enough? (October 26, 2008)
A Sigh of Relief, but Hard Questions Remain on U.S. Economy (September 8, 2008)
Riches to Rags (August 3, 2008)
Related Searches
United States Economy Get E-Mail Alerts
Economic Conditions and Trends Get E-Mail Alerts
Prices (Fares, Fees and Rates) Get E-Mail Alerts
Inflation (Economics) Get E-Mail Alerts

[ Next Thread | Previous Thread | Next Message | Previous Message ]


[ Contact Forum Admin ]


Forum timezone: GMT-5
VF Version: 3.00b, ConfDB:
Before posting please read our privacy policy.
VoyForums(tm) is a Free Service from Voyager Info-Systems.
Copyright © 1998-2019 Voyager Info-Systems. All Rights Reserved.