Jon Hilsenrath and Lucinda Harper write about deflation in the economy. Why buy now if things will be cheaper tomorrow?
No mainstream economists are predicting a replay of the 1930s. Still, “one man’s bargain is another man’s pain,” says Paul McCulley, an economist with the giant California bond-fund manager, Pacific Investment Management Co., best-known as Pimco. “The risk [of deflation] is real,” he says.
That risk would become more real if frothy home prices in the U.S. began falling. Indeed, some economists and real-estate experts worry that housing prices have risen too fast and could fall.