by Alexis Cala, PIC Current Assistant Producer
Over the last few months we have all heard terms like depression, recession, deflation, and inflation thrown around when talking about the economy. Now the threat of deflation and a depression are becoming more real. A government report says the cost of living dropped 1.7 percent in November, the second record-setting monthly drop since October.
The housing slump also continues. While consumer prices fell at a record rate in November, new home construction plummeted to a level not seen in nearly half a century! As the value of homes decline, we all seem to be cutting back on buying things such as cars, clothes and TVs. Building permits, which are a sign of future construction declined nearly 50 percent from last year.
Food and gas cost less…why are falling prices bad?
November’s record breaking report is raising concerns about deflation. Deflation is an overall, steady drop in prices.
If you know prices will keep dropping, you’ll likely wait to make purchases in hopes of even lower prices in the future. When this happens prices have to drop in order for people to spend money. If you decide to wait for prices to drop even lower, the cycle continues and businesses continue to lose. When no one’s spending, bankruptcy and mass layoffs can become a harsh reality for many.
So this time the Federal Reserve is cutting the interest rate to an all-time low!
Record low figures have helped persuade the Fed to lower the interest rate once again in an attempt to get banks and people spending. The Federal Reserve lowered a key interest rate from 1 percent to a range of 0 to 0.25 percent. This is a record low! Wall Street has been waiting for another cut, but the new rate has gone above and beyond what most were expecting. (Read the full story at the Washington Post.)
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