On Mon, Mar 22, 2004 at 08:13:46PM -0800, Gautam Mukunda wrote: > Very interesting discussion. Two points I would add: First, the > historically low levels of inflation for a prolonged period of time > are often attributed to the influence of globalization, forcing > companies to hold the line on prices.
Specifically, China has been contributing a disinflationary effect on the world economy for a number of years now with all of the manufactured goods produced by low wage workers. > This may explain why - despite the increase in oil prices - inflation > has been basically non-existent for a prolonged period of time. I wouldn't go that far. While it may have had some small contribution, the most important factor has got to be the capacity utilization, currently at a 20-year low in the US: http://research.stlouisfed.org/fred2/series/TCU/3/Max > Second, interest rates may not be as low as they seem. They are > often thought of as real interest rates - the interest rate minus the > inflation rate. Given the extremely low inflation rate, real interest > rates aren't (I believe) at historically low levels. Actually, real interest rates ARE at historically low levels. We have negative real interest rates, and have had them for over 2 years now. It doesn't happen often. Since the end of Bretton Woods, there was the high-inflation period between about 1973 and 1979 when real rates were negative. There was a brief (less than 2 years) period between 1992 and 1994. And there is now. Here is a plot of the historical real 3-month T-bill rate: http://erikreuter.net/econ/tb_cpi.png -- Erik Reuter http://www.erikreuter.net/ _______________________________________________ http://www.mccmedia.com/mailman/listinfo/brin-l
