The ads seem to bring a lot of good news.  A local clothing store advertises that if you buy one suit you get two free and a discount on dress shirts – an amazing 2/3 off!  Prices on computers and technology continue to fall with some laptops available for as little as $500.  This is a great boom for consumers, isn’t it?

The short answer is yes, but the long answer is no.  If you take all of this together we’re looking at a serious problem with deflation, something we haven’t seen since the 1930s.  It’s far worse than inflation for many reasons, the simplest version of it being that an economy based on credit cannot function if there is no reason to expect rising returns on investments.  And there are signs that deflation is going to be the watch phrase for some time to come.

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The big summit in Seoul is over, and all the world’s leaders have emerged with a united plan of action to stabilize the global economy.  That’s the headline that the G20 conference would like me to write, but I can’t.  We had another opportunity missed, but no one really expected anything else.  That’s the situation around the world right now.

Responsible nations like Brazil did their best to reign in the profligate ones like the US, but with little result.  I like using that as the headline because the irony of it is really funny.  The joke, however, is on all of us.

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The actions of the Federal Reserve have an air of dark wizardry about them – they are mysterious, powerful, and use forces that appear to be a kind of magic.  The most powerful incantation is the often-muttered “Quantitative Easing”, a spell that has moved from the dark recesses of economics into the popular press.  What it means, in the end, is that the Fed literally conjures money from thin air and gives it to the US government to go out and spur some kind of economic growth.  Though this handy li’l charm is now being openly discussed the reasons why it has become so useful have not.

You want to see a magic act?  This is one helluva trick.  It’s showtime at the Fed.

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Things aren’t going well and many people would rather hide under the covers for a day than go out and confront the realities of the world.  That is the image that comes to people’s minds when I insist on using the word “Depression” rather than “Recession” to describe the economic situation we’re in.  The picture is one of personal depression, rather than economic or social.  As flawed as that image is it can actually work if we think of this as a “Managed Depression”, a big downer we’re trying to get through without a ton of pain.  It’s not impossible, we just need a bit of help.  Can we look at it that way?

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