Consumer Price Index Falling

The Consumer Price Index had the single greatest monthly fall in the month of October since World War II. This is a new phenomenon because since WWII there has been almost exclusively inflationary times. The public policies and difficult situation of President Elect Obama are discussed in this article.
One of the problems with the falling price index is that the companies who already have large loans out have decreased profitability and must repay the loans back in dollars that are “worth more” than the previously loaned dollars. This causes many business and consumers to cut spending furthering the crimp in the economy. Prices may continue to fall causing more and more defaults on loans. The “time value” of money changes as the interest rates fall. It becomes less costly to hold onto cash because of the risks involved in investing and the deflationary period. The Federal Government must try and spur economic growth by lowering the interest rates thus raising the quantity demanded of loaned money. By lowering the interest rate banks may be able to loan more money out and incur less economic losses by loaning money from the Federal Government overnight.
One interesting point is that if wages are staying the same, deflation could potentially be a good thing for the people who retain their jobs. Their real wages would increase although the dollar amount does not change. They will be economically better off. They could purchase larger amounts of goods than before. The deflation hurts mainly the people with loans and all who lose their jobs because of the economic downturn.