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In a celebrated speech at the end of 2002, he suggested that the Fed should be prepared to take control of the bond as well as the money market if necessary to avoid a deflation.
Similar(59)
From a legal perspective, the central bank can refer to its mandate of aiming for a price stability of roughly 2% and avoiding a deflation spiral that would lead to decades without growth or investment.
In all likelihood, this involves propping up bad banks until they can earn their way out of insolvency, and engaging in large scale fiscal policy to avoid a debt-deflation spiral.There is a great deal of angst coursing through the economics blogosphere over the Treasury's new bail-out plan whether it's appropriately crafted, and too small or too large.
Announcing the surprise move, Kuroda said policymakers were determined to avoid a return to deflation.
"Ben Bernanke's motto seems to be that he will do whatever it takes to avoid a depression and avert deflation," said Edward Yardeni, president of Yardeni Research.
In the current circumstances that means keeping the level of demand high enough to avoid deflation and reforming the financial system to avoid a repeat of the excesses that led to the crash of 2007.
Japan, struggling against two decades of stagnation and deflation, had to resort to Abenomics to avoid a quintuple-dip recession.
In our March 15th blog post (What's So Bad About a Little Deflation?), we discussed deflation and why central bankers across the globe have gone to great lengths to avoid an environment of falling prices.
"My basic view is that we did a pretty successful job of putting out a severe financial crisis and avoiding a Great Depression or Great Deflation type of thing," he said.
The Fed has been aggressive in cutting interest rates to a record low near zero and turning to unconventional ways to lift the country out of recession because it is trying to avoid deflation, or a prolonged drop in prices, he said.
The recent surge in share prices appears to assume that profits will grow at a strapping double-digit pace over the next year, but that will be hard if inflation continues to slide.America's escape routeOne reason for hoping that America will avoid deflation is a weaker dollar, which will support exports and boost import prices.
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