Another day, another story about deflation. It's known to all that when Fed Chairman Alan Greenspan talks, the business journalism community listens. Economist Michael Englund believes that Greenspan's talk about the threat of deflation has caused a frenzy of stories on deflation and anxiety about deflation in the business community. In his article "Greenspan's Deflationary Demons" at Business Week online, Englund argues that Greenspan's words may be causing reduced business investment:

"Given that the financial markets had moved beyond the deflation focus of late 2002, when the Fed started the recent "open mouth" campaign, it's plausible that Greenspan is responsible for keeping this obscure business worry alive -- no matter how many times he repeats the word `remote.'"

Important Links

• To learn more about how Fed reactions to inflation and deflation influence interest rates see "What is deflation".
• To learn about the link between exchange rates and interest rates see my "Guide to Exchange Rates".

If you have any questions or comments on the deflation scare, you can either join our discussion on the U.S. economy and deflation in the forums or send me a private message using the feedback form.