Declining inflation is a concern because it carries the risk of outright falling prices, known as deflation, which deters consumers from spending in the belief they can wait and buy more cheaply later.
There have been so many episodes prior to the creation of the Fed in 1913 where there was deflation and then things got better within a year or two. All this nonsense that deflation is bad is pure hogwash. Computers getting cheaper as technology advances is an example of dropping prices. The quality is getting better along with it and people are still buying computers aren’t they?
France is under pressure to cut its public deficit to the EU norm of 3 per cent of gross domestic product. However, Valls said his government could not add to measures already taken to reach this limit, which the European Union sees in any case as a maximum ceiling.
The French slump is due to socialist policies of higher taxation, larger government, and restrictions on competition. The French have gotten used to getting government handouts in the form of subsidies and are unable to compete globally. They charge much higher than what market prices warrant for their services, and just getting lower salaries can simply keep them employed. People get unemployed when the salary they charge is greater than the productivity they bring to the businesses, or there is a massive slump in the economy. With higher salaries and restrictions of firing people, businesses naturally choose not to hire more as the previously hired ones are already too expensive. The onerous red tape to get rid of an employee is simply a drag and prevents businesses from adapting to changing conditions.
An abundance of agriculture subsidies has made the French farmers highly inefficient, and excessively pampered. Reducing these subsidies that can significantly diminish the size of the government and lower it’s deficits. Although it is clear to all what needs to be done politically speaking it’s a tough pill to swallow. The country’s political leadership is more concerned about its survival than what is best for the country.
There are other structural reasons for the slump in business, most arsing from artificially lower interest rates, leading to an artificial boost in consumption and production which eventually falters as there are not real savings backing these consumption and investments. When that unwinding of malinvestments begins unsound businesses go under. It’s the propping up of these business by the government that delays and stalls the recovery, but boosts the equity and bond markets giving the illusion of growth. The housing market also a segment of the economy also gets a boost due to lower interest rates but people without savings are digging their own graves as more and more debt due to lower interest rates is piled on.
Unless the central banks and governments let weak entities fail, there is going to be a continued slump in growth. These socialist policies and government intervention and restrictions are the reason for all this mess. We need freer economy where growth is genuine and not artificially orchestrated by the state, eventually to bankrupt the state itself and impoverish it’s citizens. The French slump is due to socialist policies and more of those policies aren’t going to get the economy out of doldrums.