Why aren’t we getting Inflation?

I was reading an article in the Money magazine about this vary subject and they explained it very simply. There are 3 factors that have staved off inflation. The first being that banks aren’t lending, loan growth prior to crisis was 9.6%, now it is -1.8%, wow isn’t that a decline, the banks are doing as individuals are doing, deleveraging as much as they can. The second being that business is not hiring; job growth before crisis was 1%, after -4.2%, another big decline, and people who are lucky to still have their jobs, may be seeing pay cuts or no increases so salaries are stagnant or declining as well. The last is the consumer spending, before the crisis 1.4%, now -0.7%. That one I was surprised, I thought that would decline more, but they said that this was HUGE since 2/3’s of the economy is comprised of consumer spending.

So because of these 3 factors they are counter-balancing the drop in interest rates that keep the scales (if you can say that) balanced. Now if these 3 factors or areas begin to improve again, this is when we may see the inflation everyone is talking about, so stay informed, keep your head up and watch those 3 areas for improvement, then make adjustments accordingly to stay ahead of the curve.


~ by debt2dreams on October 15, 2009.

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