Deflation: Is it real? What can you do?
By Sheyna Steiner • Bankrate.com
A collapsing credit bubble is raising the specter of deflation.
With deflation, the prices of all goods, including labor, fall.
What to do: eliminate debt, save money and diversify portfolio.
The economic doldrums currently afflicting the country have the potential to spiral into deflation. That’s not just the opinion of fiscal doomsayers, but some heavyweights as well.
In a research paper released at the end of July, James Bullard, president of the Federal Reserve Bank of St. Louis, stated that the U.S. faces the risk of deflation. Coming from a voting member of the Federal Reserve’s Federal Open Market Committee, this statement crystallized the threat into a real possibility — if only one of several.
“Deflation over any period of time is still an unlikely scenario, but it’s still a possible scenario,” says Bankrate’s senior financial analyst Greg McBride, CFA.