That Big Sucking Sound in the Economy Is the Threat of Serious Deflation

By William Greider, The Nation
Posted on July 30, 2010, Printed on July 31, 2010
http://www.alternet.org/story/147694/

The economic specter stalking Barack Obama is not the nonsense debate that captivates deficit hawks and witless political reporters. It is the threat of a full-blown monetary deflation that would truly put the US economy in ruin. In a general deflation, everything falls--prices, output, wages, profits. Unchecked, this can lead to another Big D--the Depression Obama claims he has avoided.

Depression was the fate that befell Herbert Hoover after 1929 and the outlines of this larger catastrophe are present again. It is easy to dismiss deflation warnings from curbstone critics, including from me. But it is more significant--and truly scary--when senior policy makers of the Federal Reserve begin to express the same fear, as the New York Times reported today [1]. The Fed has done quite a lot in the last two years to prevent this disaster from unfolding, but some officials are now worried the Fed hasn't done enough.