The fall in demand plunges prices

A couple of key elements to consider in economics are: the time factor (not to be confused 6 months to 2 years) and the expected order of events. In order to understand why prices have no where to climb, we must first know the magnitude of the fall in demand. And this fall in demand is a direct reflection of the substantial fall in consumption. And that in turn the decrease in consumption is the product of the hordes of unemployed increasing every day. As you can see, is a fatal chain, was in decline, with increasing deceleration, beating more feebly.

Much of this evidence makes it very unlikely that a storm is looming inflationary as feared by those who anticipate an inflationary spiral when everything returns to normal. The problem is: When does this happen in 6 months, 2 years ...? In this respect, Wall Street yesterday suffered a fainting spell to make themselves known the couple fall in retail sales in 60 years. It is logical that if you increase the unemployment rate we are seeing the collapse of the global economy will not be resolved in a couple of months, not six. So do not be surprised if Athanasios Orphanides has gone even further as advised on this blog, noting that the real risk we face is that of deflation. In fact, the member of the European Central Bank said:

"The weakness of worldwide demand in recent months is likely to exert downward pressure on inflation, not only for this year, but also for next year and maybe beyond that"

¿Inflation Risks? On the contrary. While the productive sectors will continue their the long rider through the desert and increase the weight of countries who see their power industrial collapse, the demand will remain weak. In the fall of South Korea and Taiwan, now joins Singapore, whose economy, after eleven months of decline in exports, will suffer a drop of 9% of GDP. All the tigers of Asia, including Thailand, Malaysia and Hong Kong are suffering the consequences of a globalization that has increasingly turned away from real economy and gave flesh and blood to speculation and derivatives.

We live in times seizures, and certainly anything can happen. In fact, just six months, until the Fed had denied that crisis. Why speak of orthodoxy greater. In this regard, it is natural that prices rise to concern, but we need to understand the real causes that move and do not buy the ideas Friedman: his vision for the control of prices as the central element of the economy turned out to be a fallacy. Especially when their position for the control of prices (interest rates), ended up being as or more harmful than that which prevailed when the prices were fixed by decree. Both ways to control prices were ineffective. The myopia of both processes shows the type of glasses that faced with globalization. And that is why the present chaos.

To refresh your memory, the latest escalation inflationist had two components: a real, favorable to the economy producing goods and services, and unreal, induced by animal spirits. The real case was the strong increase in demand for milk, wheat and corn from China and India in 2007. They saw that it was time to better feed their people and triggered the sudden rise and shortages of basic foodstuffs. The decision caught by surprise by FAO, the body does see? that food production is in line with supply and demand globally.

The second component that triggers the price has to do with speculation, and here Bernie Madoff spent many resources that they manage, to speculate on the price of oil in that reckless marathon of 2008, which led oil prices to the $ 145 barrel. When oil began its collapse, came the immediate ruin of the investor of Steven Spielberg. For this type of operation is that financial transparency has become a key requirement of the new financial order should apply to both countries and companies. That is also why it is imperative for the G20 and the OECD.

Note: This article was originally published in Spanish in El Blog Salmón