Threat of Deflation rises for the world

Developing countries, including China and India, are showing signs of economic cooling on account of the cascading effect of the globaldownturn.

India's industrial growth unexpectedly turning negative in October, shrinking by 0.4 percent after expanding by 12.2 per cent in the same month a year earlier, hint at the worsening conditions for the economy.

What others are reading now:
-Plan for World Economy Revival
-Indian Economic Summit Updates
-Rs v/s US$ latest updates
-World's Strongest economies list
-Trouble in Indian Forex
-Indian Agricultural Updates
-Effect of Recession on Indian economy

Given the deepening global recession, the threat of deflationary spiral is mounting which may fix the global economy in similar lines of the great depression in 1930s. Even as analysts and economists feel that the governments have managed to rescue the global economy from a deflationary spiral by extending deposit guarantees and recapitalizing banks who suffered losses, attempts to artificially reducing interest rates to support prices are extremely ephemeral measures.

"They may appeal as a quick fix, defending banks from further losses. Artificially supporting prices removes the stimulatory effect that lower prices have on new investment. Instead of a V-shaped bottom followed by a speedy recovery, you may end up with an L-shaped depression," said Bred Jonathan, consulting partner at Kreg and Bordan Economic Advisory.

We often hear economists or analysts refer to the threat of deflation. Deflation is a natural function of the market to correct excesses from a boom. The boom normally ends when the central bank stops new money creation, which was used to synthetically stimulate the economy.

What others are reading now:
-Plan for World Economy Revival
-Indian Economic Summit Updates
-Rs v/s US$ latest updates
-World's Strongest economies list
-Trouble in Indian Forex
-Indian Agricultural Updates
-Effect of Recession on Indian economy

Source www.economictimes.com - read full article

published under - deflation in world economy, deflation threat, economy of india, global recession updates, indian economy updates, world economy updates