Deflation is here, and it is a real threat to any economic recovery from the virus:
http://dailytorch.com/2020/04/deflation-is-here-and-it-is-a-real-threat-to-any-economic-recovery-from-the-virus/
The price of a barrel of oil briefly fell below zero dollars this week, demonstrating clearly what happens when there is no longer demand for a product or commodity, as tens of millions of Americans are leaving cars in their driveways and airlines are largely grounded. All around the world, it’s much the same situation as the global economy has collapsed in the wake of the Chinese coronavirus pandemic. In that environment, prices fall, and sometimes they can fall all the way to zero with a sufficient collapse of demand. In the case of oil, there’s simply nowhere left to store the oil being pumped out the ground and as it is, it will take months or longer to clear existing inventories. Overall, last month consumer prices fell by 0.4 percent led by the drop in energy prices.The collapse of demand appears destined to affect many sectors of the economy. Making matters worse, the dollar was already quite strong relative to other currencies when the pandemic-induced recession began. And, in March, the Trade Weighted U.S. Dollar Index rose to an all-time high as the world poured into U.S. treasuries in a flight to safety. This might be the biggest warning light of all. The Great Depression dragged on for as long as it did because of the failure to understand the unintended consequences of keeping the dollar exchange rate to gold too high as other economies engaged in massive competitive devaluation and retired the interwar gold standard. Today, if the Fed refuses to intervene to keep the dollar’s value stable — again, it just hit an all-time high — President Donald Trump needs to pay attention. The President could direct Treasury Secretary Steven Mnuchin to work with the Federal Reserve Board of Governors to engineer a devaluation, using the boosted the Exchange Stabilization Fund to buy foreign exchanges and then selling them directly to the Fed. Or get the Fed to unlock its own exchange stabilization powers and conduct those operations directly. As long as the dollar keeps rising, based on past experience, unemployment could keep increasing — even after states reopen their economies. What do you think?
