1. Jonathan Bradley THE GLOBAL ECONOMY IN 2003 A CHOICE OF TWO EVILS?

2. Jonathan Bradley

3. u INFLATION OR DEFLATION u A SUSTAINED RISE OR FALL IN THE OVERALL PRICE LEVEL u POTENTIALLY DEVASTATING CONSEQUENCES

4. Jonathan Bradley INFLATION: WHY IT IS BAD u CAN DESTROY SAVINGS u DAMAGES CONFIDENCE u HURTS THOSE ON FIXED INCOMES, SUCH AS PENSIONERS u DISTORTS THE ECONOMY u LOTS IN THE 1970S AND 1980S

5. Jonathan Bradley DEFLATION: WHY IT IS BAD u IT HARMS DEBTORS (PEOPLE WHO OWE MONEY) u DAMAGES CONFIDENCE u REDUCES ECONOMIC ACTIVITY u CAN BRING DEPRESSION u 1930s IN USA AND EUROPE (AND NOW - LOCATION TO BE REVEALED!)

6. Jonathan Bradley THE ECONOMIC AIM: A SAFE MIDDLE COURSE

7. Jonathan Bradley Which is the bigger danger? u Just now the main danger is from deflation u BUT u The cure for it could lead to inflation later on u So, there is a dilemma!!

8. Jonathan Bradley A COMPLICATION u ECONOMISTS TELL US THERE IS –GOOD DEFLATION –AND –BAD DEFLATION

9. Jonathan Bradley WHAT ON EARTH IS GOOD DEFLATION?? u WHEN PRICES FALL BECAUSE OF: –INCREASED EFFICIENCY –TECHNOLOGICAL PROGRESS –INCREASED SUPPLY u EXAMPLES: COMPUTERS, CD PLAYERS

10. Jonathan Bradley AND WHAT IS BAD DEFLATION?? u GENERAL AND SUSTAINED FALL IN PRICES WITH: –INSUFFICIENT DEMAND –FALLING PROFITS AND RISING UNEMPLOYMENT –POSSIBLE DEPRESSION

11. Jonathan Bradley u WHAT HAPPENS? u SHRINKING OUTPUT u MASS UNEMPLOYMENT u SOMETIMES, POLITICAL AND SOCIAL UNREST

12. Jonathan Bradley HAVE WE GOT DEFLATION? u YES - IN SOME COUNTRIES u BUT u BUT, IS IT THE GOOD KIND OR THE BAD KIND? u ANSWER: A BIT OF BOTH u HAS IT LED TO DEPRESSION? u ANSWER: POSSIBLY, IN JAPAN

13. Jonathan Bradley u STOCK MARKETS AND LAND PRICES WENT UP FAR TOO MUCH u BUBBLES!! u WHEN THEY BURST ECONOMIES SUFFERED

14. Jonathan Bradley REBASED Much worse in Japan!!

15. Jonathan Bradley PRODUCER PRICES 2003

16. Jonathan Bradley THE MAIN ECONOMIES RIGHT NOW u CONSUMER PRICES (WHAT WE PAY) GOING UP IN MOST PLACES u GROWTH CONTINUING (JUST) IN MOST COUNTRIES u SO MAYBE EVERYTHING IS OK AFTER ALL? u BUT………………………..

17. Jonathan Bradley 2003 WORLD GDP GROWTH FEEBLE!

18. Jonathan Bradley SICK JAPAN u CONSUMER PRICES HAVE BEEN FALLING FOR SEVERAL YEARS u REAL OUTPUT HAS BEEN SHRINKING OR ONLY JUST GROWING FOR OVER 10 YEARS u IS THIS SLOW-MOTION DEPRESSION?

19. Jonathan Bradley CURING (BAD) DEFLATION u MONETARY POLICY - CUT INTEREST RATES, SO: –MORE BORROWING –MORE INVESTMENT –MORE SPENDING u SOMETIMES DOESNT WORK - KEYNES PUSHING ON A STRING

20. Jonathan Bradley A KEYNESIAN BOOST u If people wont spend then - u government must spend for them u this will make up deficient demand

21. Jonathan Bradley SORTING OUT JAPAN u JAPANESE INTEREST RATES ARE CLOSE TO ZERO - SO CANT CUT THEM u PUBLIC DEBT ALREADY 140% OF GDP, SO CANNOT BORROW MORE u SO, BANK OF JAPAN MUST CREATE MONEY FOR TAX CUTS OR STATE SPENDING

22. Jonathan Bradley EXTREME BUT EFFECTIVE u PRINTING MONEY ONLY JUSTIFIED IN EXTREME CASES u CAN BE EFFECTIVE u WILL JAPAN DO IT? u MIGHT NEED IT ELSEWHERE

23. Jonathan Bradley THE OTHER DANGER u PRINTING MONEY SHOULD HELP DEFLATION/DEPRESSION NOW u BUT, IN THE LONG RUN MASSIVE MONEY CREATION MAY LEAD TO INFLATION - BACK TO THE START! u SHOWS THE IMPORTANCE OF BALANCE IN ECONOMIC POLICY

24. Jonathan Bradley ? ??