Wall Street Journal

Cure for Inflation? The Printing Press

November 18th, 2008

By: Rob Curran

Lower prices are a good thing for economies, right? Not if they bring on deflation. The producer-price index, a key measure of wholesale inflation in the U.S. due for release Tuesday from the Labor Department, is expected to show a decline of 1.7% in October, bringing inflation closer to the Fed's comfort zone.

Treasury inflation-protected securities, bonds used as a hedge against changing prices, currently are pricing in consumer-price inflation at an average of 1% for the next 10 years, according to Barclays Capital. That is dangerously close to the zero-price growth that demarcates deflation.

Economists appear less worried than markets about falling prices. They maintain that the proactive stance of the Federal Reserve and other central banks will head off deflation.

Comments from current Federal Reserve Chairman Ben Bernanke years before he was Fed chief offer support for economists' arguments. In his famous address on fighting deflation in 2002, Mr. Bernanke said that the Fed would'nt run out of ammunition to influence prices even after cutting interest rates to zero: "The U.S. government has a techonology, called a printing press... that allows it to produce as many U.S. dollars as it wishes at essentially no cost," he said.

Wall Street Journal

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