The Economy: Beware the Bottlenecks

The article starts off by saying there is a nice thing about a recession and that is everything is on sale. James B. Bullard is the president of the Federal Reserve Bank in St Louis and he brings up the idea of the recession of 1774-1775. He says that the Fed overestimated the amount of unused productive capacity in the system. In result of this, the Fed kept a monetary policy that was to easy and wound up with high inflation. Economist, business executives, and supply-chain experts believe that shortages are short-term problems that wont harm the economy as a whole. They think the big risk will come from deflation. The auto industry is most vulnerable to supply disruptions even with the massive decline in sales. Automakers have decreased their capacity and this has help sustain prices. Cash for clunkers has produced shortages for Ford vehicles like Escape and Chevy Cobalt. To end the article it says that the central bank needs to be prepared to fight a war on two fronts. The fronts that he is referring to are inflation and deflation.