I thought a weak dollar would encourage US exports, so stimulate the economy there and lead to inflation ?
HH Reply : ” … because they are stupid and all of them like to sensationalize everything ! No, really it really comes from the fact that commodity prices are rather benign and both PPI and CPI are not showing signs of inflation, but rather dis-inflationary tendancies. What people really fear is a Japan like situation with dis-inflation leading to deflation leading to doom and gloom. The problem really comes should US growth and productivity turn down – so far this is not the case, but as usual everybody panics ! It’s important to remember that a large part of the economic condition of deflation initially occurs as a result of negative psychology. It is almost a self-fulfilling prophecy, since as more and more people talk about the spectre of deflation, the more likely it is that we slip into a deflationary environment as consumers all tighten their belts through fear of losing their income. Once in a deflationary environment it is very difficult to quickly escape its clutches and, as
