From Reuters via Forbes, Greenspan says:
‘The issue we are concerned about is not deflation in the sense of falling prices per se, but the issue of what I would call corrosive deflation. That is deflation that essentially feeds on itself, creates falling asset prices, which in turn brings down levels of economic activity through the wealth effect, contracting profit margins and a type of weakness which we all... conclude is far more of a concern than inflation.”
“While we, dealing with inflation, have essentially some element of certainty about what it is we need to do, we are far more unclear on the issue of deflation and as a consequence in one sense we need a much wider firebreak, in logging and foresting terms, because we know so little about it, so we lean over backwards to make certain we contain deflationary forces.”
“All in all we are looking at a low probability event but because we know so little about it and because conceptionally if it happens, and the probability is very low that it will, but if it happens our concerns are such that it could be a significant event for which we require insurance against....
The speculative crowd in the bond market is l-o-v-ing this, with its tantalizing — if ungrammatical! — hint of lower rates and long-end Treasury buying...
