Krugman: We truly are flirting with disaster.

[RedEarth]

About that deflation risk

There has been a distinct change in tone from the Obama team today, as they seem to have become suddenly aware that there’s a real risk that the stimulus plan will either fail to pass, or be emasculated to the point that it doesn’t come close to doing the job. Obama himself has warned of catastrophe if we fail to act, and — finally!– denounced the tax-cut philosophy. Meanwhile, Larry Summers has finally made the point I’ve been pushing for a while — that we’re at major risk of falling into a deflationary trap.

.......

And right now the CBO is saying that in the absence of a policy action the average output gap will average 6.8 percent over the next two years. Do the math: if anything like the historical relationship between output and inflation holds, we’re looking at major deflation.

OK, maybe that relationship won’t hold — getting to actual deflation may take a deeper slump than merely reducing the inflation rate. And maybe a regression driven in part by 80s data isn’t a good guide to current events. But deflation is a huge risk — and getting out of a deflationary trap is very, very hard.

We truly are flirting with disaster.

http://krugman.blogs.nytimes.com/2009/02/04/about-that-deflation-risk/

[ShortnFiery]

1. DUPE

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=132x8167526

[Enrique]

2. not the same post n/t

[SteppingRazor]

3. Y'know, dupes are perfectly acceptable in GD and GDP...

just not in LBN.

[RedEarth]

8. Dupe? ...that's a different forum and a different discussion

Granted it links Krugman, but it's a totally different post by Krugman. The only dupe is that it came from Krugman's blog. The purpose of this post was to show the risk of deflation.

Here is what Krugman said from the link at the other post....it has nothing to do with deflation.

Shock and oy
Martin Wolf has it right:

First, focus all attention on reversing the collapse in demand now, rather than on the global architecture.

Second, employ overwhelming force. The time for “shock and awe” in economic policymaking is now.

http://krugman.blogs.nytimes.com/2009/02/04/shock-and-oy/

[spanone]

4. i think republicans think they can torpedo this bill then blame it on President Obama.

i don't think it will work

[leftofthedial]

5. neither party has the slightest interest in saving the American people from this disaster.

[EOTE]

6. Really? I'd imagine the party intent on passing the stimulus bill is interested. NT

[leftofthedial]

7. the "democrats" are slightly less egregiously off the mark

the "stimulus" package would still be a modestly helpful thing, provided they don't further weaken it with political wrangling.

[Donnachaidh]

9. ...

:thumbsup: