In this case, a
growing number of economic observers are becoming concerned about falling
prices, in the Eurozone, the Pacific, and elsewhere — and what it means for the
global economy.
In the 1930s,
falling prices were a scourge. Assets became less attractive over time, since
they might be cheaper to get in the future, and so it forestalled purchases.
Meanwhile, the economy failed to recover, despite the collapse of the
international gold standard and the easing of monetary conditions that brought.
No matter what
central banks conjured up, the economy kept on sinking.
So, are we in
the same situation today?
For certain,
prices are slowing in the Eurozone, only growing at an annual rate of 0.6
percent in 2014, according
to Eurostat. So spooked were policy makers,
that the European Central Bank is firing up the printing presses, promising
monthly purchases of assets totaling €60 billion.
And in Japan,
where the economy has not grown at all for over 20 years. Since the beginning
of 2012, the
Bank of Japan has more than doubled the amount of
government securities it holds.
Similar fears
provoked the U.S. Federal Reserve to engage in unprecedented asset purchases of
U.S. treasuries and mortgage-backed securities since the financial crisis began
in 2007, totaling
more than $3.5 trillion.
Despite the
easing, prices in the U.S. most recently dropped 0.4 percent in December. But
the decrease has been led primarily by a 9.4 percent decline in gasoline and a
7.8 percent drop in fuel oil.
So, the current
slowdown may just be the price of oil correcting itself, a view taken by
Federal Reserve Chair Janet Yellen who says the current price drops are only
“transitory.”
On the other
hand, there is no question that prices have been trending downward for two
decades in the U.S., Europe, and Japan — along with nominal economic growth and
jobs growth.
But the real
downward pressure may be coming from a different source, namely, the decline of
the working age population. In Europe, the number of people aged 16-64 has only
increased an average annual percent of 0.31 percent since 1996. In Japan, as
the workforce there rapidly ages, the population aged 15-64 has been in
outright contraction, decreasing at 0.52 percent a year.
The U.S is
slightly better, with the working age population growing at about 1.07 percent
a year.
Nonetheless, a
shrinking number of people entering working age does appear to have a major
impact on everything else, largely because of lower demand for goods and
services, credit, and everything else.
In Japan, the
quantitative easing does appear to have had some temporary impact, spiking
inflation in the past twelve months by 2.4 percent, according to the
Statistics Bureau of Japan. Also, in
2013, nominal economic growth poked upward at a whole 1 percent (believe it or
not, for Japan that’s actually quite significant).
However, that trend
may already be reversing, as
in the third quarter of 2014,
nominal growth in Japan fell 0.8 percent.
So, despite all
of the easing by the Bank of Japan, it is not enough to overcome the overall
demographic decline there. The central bank cannot print customers, apparently.
All it can do is prop up asset prices which might have some impact on the
economy, but then only temporarily.
Which may be
the lesson to be learned. Throwing money from helicopters does not really have
much of an impact over the long haul if nobody’s around to spend it. Just as
there may be a “demographic dividend” when working age populations are growing,
there appears to be a commensurate decline when they are not. Long-term,
couples may start deciding to have more children.
Until then, the
world might need to start getting used to slower growth, weakening demand, and
yes, falling prices. What is clear is that no amount of quantitative easing has
been able to stop the economic slowdown worldwide.
Robert Romano
is the senior editor of Americans for Limited Government.
http://netrightdaily.com/2015/01/real-deflation/
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