Sunday, February 9, 2014

Unemployment, CPI and wages in the great depression

They match, seemingly in equilibrium on the way down. Why? Not sure.  But it is a current debate. This happens when everyone is aware of the problem, its a smooth transition down. The other possibility is a severe banking disorder that cannot be corrected by prices.  The banker would be holding rates to low, causing disinflation too fast and labor markets cannot reprice. But I doubt it. The GD was a real and known coordination problem, everyone was watching it.


Did the banker do it? CPI kept falling and the banker did drop rates a bit. This graph is a bit ambiguous, but it does show a continuing downward drop in rates durin the deflation and unemployment. If so, then labor employment would
never have time to stabilize. But I need a better picture.
 But, if this was Fed induced deflation, then why didn't the market rise in response?