“Essentially, as soon as the government stops the expansion, you are going to hit one of these deflationary corrections with all of the nasty business cycles that accompany it,” Lu said. Read more
Time to panic?
The good news is that deflation is not the most likely outcome of the current economic environment.
That deflation worries are hanging over the economy at all is the bad news.
“When an economy experiences deflation, the purchasing strength of its monetary unit, the dollar in our case, increases, meaning the prices of all goods — including labor — experience downward pressure,” says Albert Lu, principal at The Woodlands Bullion Company in The Woodlands, Texas.