The Great Debate: Inflation, Deflation and the Implications for Financial Management

As the economy bounces between recession and recovery, financial executives have to make a bet between whether the economy, their industry and their business will experience rising prices going forward or whether they will have to grapple with the balance sheet and operational effects of deflation. They will have to choose wisely as this has the potential of being a bet-your-business risk. The decision is … [ Read more ]

Carl Steidtmann, Dan Latimore and Elisabeth Denison

Monetary policy is not the only economic mechanism driving inflation. Government debt creates inflationary pressures in at least three ways. First, rising government deficits represent an increase in aggregate demand over supply. While small increases in the deficit have little impact on price levels, large increases in deficits can have a big impact. Second, by shifting resources from the more productive private sector to the … [ Read more ]