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**Fekliopas** · 10-29-2008, 04:17 PM

Originally posted by KrazyHorse
I think there is a significant probability of deflation too.

This would be a function of the money supply shrinking as credit (and thus the money multiplier) reduces due to excess risk aversion.

In this case, dropping the fed funds rate will have the same effect as pushing on a rope. Right, and without analysing the data, seeing the fed make a drastic cut like they are expected to makes me think that they also believe in a high probability of deflation.

10-29-2008, 04:17 PM	#16
Fekliopas Join Date Oct 2005 Posts 331 Senior Member	Originally posted by KrazyHorse I think there is a significant probability of deflation too. This would be a function of the money supply shrinking as credit (and thus the money multiplier) reduces due to excess risk aversion. In this case, dropping the fed funds rate will have the same effect as pushing on a rope. Right, and without analysing the data, seeing the fed make a drastic cut like they are expected to makes me think that they also believe in a high probability of deflation.
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