>[why has the Fed suddenly cut rates? One possible answer is because current
>atronomically-high natural gas prices have created a huge shift of disposable
>income from the US big seaboard cities, to the natgas producing areas. This
>unexpected delfationary force may be the straw that is finally snappiong the spine
>of the New Economy. Mark]
I do not believe that this is deflationary.
First, hihger prices are inflationary.
Second, there is indeed a deflationary element in this which is much hyped by the
media ("this is a like a tax hike") but it is countered by the the effect of this
money
transfer: If it's paid to foreign countries, the currency should weaken as a
consequence, which is inflationary. If it's paid from a region to another of the same
country, the effect should be mostly cancelled by the operation of national markets
which should redistribute the money.
That said, if the gas price hikes are passed to the consumers, it could maybe
amount to a deflationary increase in the rate of profit. But this remains to be seen,
esp. since the US savings rate is already very low. The increased profits for the
gas sector are likely to be transformed into loss for other sectors which produce
consumer goods.
>Prices can go to $80 and consumers will still need
>to heat their homes. True, they can use less gas, but not that much less.
Is that a joke? They will still need to heat their homes but most people *can*
definitely heat them MUCH less. You really don't need to walk around in T-shirt and
bare-footed in January. And if you want to type, you just have to put on warm driving
gloves.
Trouble is, they won't *want* to do that and will let the poor freeze before lowering
their house temperature by 2 degrees. Don't you love the magic of the market?
>This means that the industrial sector may face operating
>disruptions later this winter, no matter what happens to monetary or fiscal policy.
And supply disruption, uncertainty, etc. are generally inflationary. That is, unless a
huge number of people lose their jobs as a consequence. Not very likely at this
stage.
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