Inflation
Alan Greenspan and his colleagues at the Federal Reserve have spent their professional lives fighting inflation. But in the fall of 1999, central bank officials gathered at a country inn in Woodstock, Vt., to talk about the opposite: What would they do if faced with deflation, or widespread falling prices, and they already had cut interest rates to zero
Deflation is dangerous because it makes it hard to boost the economy by cutting interest rates, and because it makes debt, now at a postwar high in the U.S., harder to repay.
At Woodstock, researchers brainstormed about possible ways the Fed could spur spending, such as adding a magnetic strip to dollar bills that would cause their value to drop the longer they stayed in ones wallet.
At the time the chance of deflation in the U.S seemed remote. Inflation was low, but the economy was booming and the Fed had lifted short-term interest rates above 5%.
Today, deflation no longer seems so remote.
Prices of consumer goods, as opposed to services, are falling for the first time since 1960. By the Feds preferred measure, overall inflation was just 1.8% in the year through August. Fed policy makers have cut short-term interest rates to a 41-year
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