Tuesday, 16 December 2008

Depression?


Consumer prices fell in November at the fastest rate since 1932 it is being reported in the US. Not since the darkest days of the Great Depression, the Labor Department reported Tuesday, has prices for energy, commodities and airline fares plunged across the country.” This is scary stuff," said Mike Schenk, an economist for Credit Union National Association. "We are teetering on the brink of a massive downward spiral. Deflation is a threat."

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.

A deflationary spiral knows that when costs fall too far, too fast, it doesn't take long to start an economic cycle that's brutally hard to escape, the kind that turns recessions into depressions.

While lower prices are supposed to spur additional spending - to help stem the tide -
there's no way that's happening in the current economy, where people are cutting back on spending as fast as they can snap their wallets shut.

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