Disinflation to Deflation to an Eventual Deflationary Spiral?

When April's Consumer Price data was released yesterday, the prices of most consumer goods actually fell (Click to See Full Story: Deflation fears as US consumer prices dip).

Now, one might think lower prices are a good thing. However, a lowering in the rate of inflation -- called disinflation -- is a sign of structural problems deep in our economy. For example, a high, long-term unemployment rate is one structural reason for such a loss in pricing. More worrisome than the current disinflation, is what is called "deflation" where prices of products don't just slow at the rate that they are being hiked. Instead, prices actually fall. Deflation is a common symptom of any severe recession; or, worse yet, a depression like the Great Depression.

The fact that prices fell last month might signal a possible double-dip recession. For people on fixed incomes, disinflation and deflation are good things because they then have more purchasing power for each dollar spent. But, for the average worker, it could spell higher unemployment rates as companies try to stabilize prices by cutting back on both jobs and product inventories. For sure, pay raises are almost non-existent during extended periods of disinflation and deflation. A more serious type of deflation is what is called a "deflationary spiral" where the unemployment rate keeps chasing deflated prices and the cycle never seems to stop. That's when unemployment becomes so high that the nation's economy completely collapses.

I think that the Obama Administration's economic advisers have let this recession get out of control by banking on that useless Stimulus Package. It was a pure waste of money that ultimately my have cost us a year and a half of true recovery.