If the American People allow private banks to control the issuance of their currency, first by inflation and then by deflation the banks and corporations that grow up around them will deprive the People of all their property…".
Based on this situation, as a risk factor, if the current downward pressure on prices remains, there is a possibility that conversion of the deflationary mindset, which has been progressing steadily so far, might be delayed.
I said earlier that, under deflation, a vicious cycle of a decline in prices, a fall in sales and profits, restraint in wages, stagnation in consumption, and further decline in prices has continued.
The elemental problem is that once a high-debt state has lost 30pc in competitiveness within a fixed exchange system, it is almost impossible to claw back the ground in the sort of deflationary world we face today.
On the economic and financial fronts, they both experienced rampant inflation and deflation, as well as severe financial disruption. And, it was some twenty years ago that the decline of their national power was debated.
The low inflation rate in the euro area still present justifies the fear of the comeback of deflation and the further reduction of the economy that would result in logical contraction of production: in a word, the feared stagnation.
The first point is that, during the three years since the introduction of QQE, Japan's economic activity and prices, as well as financial conditions, have improved substantially, and Japan's economy is no longer in deflation.
A credible inflation target will anchor inflation expectations over the specified horizon, which, by definition, is enough to avoid expected deflations and increases in the real rate.
In the annual wage negotiations between management and labor, many firms this spring revived the practice of a rise in base pay, which had not been made for many years under deflation.
The Council on Economic and Fiscal Policy had intensive discussions on deflation and the NPL problem at its meeting on November 20, and agreed that a comprehensive policy package to deal with deflation should be discussed.
To ensure that this recovery will become sustainable and to overcome deflation, the Bank considers it essential that a wide range of economic entities continue to make efforts to revitalize the economy.
One of the costs unique to deflation is that real interest rates cannot decline to the level corresponding to that of economic activity, since nominal interest rates do not fall below zero.
As for the measure against deflation, Minister Takenaka yesterday stressed the importance of the target, which contain the deflation, although he does not stick to Inflation targeting policy.
That is, the Bank conducts monetary policy based on the premise that deflation is detrimental because it leads to economic stagnation and that if we escape from deflation and achieve the 2 percent price stability target, the economy will also improve.
It is now very clear that what Milton Friedman advocated the Bank of Japan should do back in the mid-1990s- to expand the money base to get Japan out of deflation- is in fact working.
On wages' front, the practice of increasing base pay annually, which had been lost during the period of deflation, was revived for the first time in more than a decade in wage negotiations between management and labor this spring.
In the interval as Japan was ensnared under the foot of the deflation demon and postponed raising the rate, the elderly population increased by 13 million people while social security benefits increased by 40 trillion yen.
The real GDP level in FY 2009 and FY 2010 is expected to be approximately 10% less than that of FY 2007. The deflation gap is large, prices fall and Japanese economy falls into deflation again.
With regard to economic policy in general, many members commented on it in relation to the Government's efforts to implement the"Emergency Countermeasures to Deflation" released on February 27.
Given that Japan's economy has been mired in deflation for 15 years, eradicating the deflationary mindset that was entrenched among the public is no easy task.
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