"The Great Stall" and "the deflationistas"

Economists React: ‘The Great Stall’ Takes Hold


The “Great Recession” has officially morphed into the “Great Stall”. There are no signs in this morning’s report on July employment of building momentum for the second half of this year. If anything, there are more signs of a deteriorating labor situation .

2 Top Economists Differ Sharply on Risk of Deflation


According to the deflationistas, as they are nicknamed, a new round of stimulus spending by Washington is urgently required to stave off a Depression-like cycle of falling prices and wages that is difficult to reverse once it is set in motion.

Inflationistas, by contrast, worry more about the effect that additional government borrowing could have on the recovery. With the budget deficit expected to hover around $1 trillion a year for the next decade, they say, interest rates could eventually surge, making borrowing — and goods — more expensive. A double dip, they say, is highly unlikely.

Comment: The problem is the Fed cannot further reduce interest rates, stimuli hasn't seemed to do much, and the government is $ 13 Trillion in debt (and basically can't afford more stimulus!)


  1. NYTimes: A Weak Report, With Glimmers

    "The bottom line is that job growth has not been fast enough to keep up with normal population growth."

  2. Notice Hatzius' definition of deflation alluded to in the tenth paragraph; 0% inflation. That's not deflation, but rather stable prices. What Hatzius is arguing, more or less, is that our economy has come to rely so much on debt, that stable prices would destroy companies and individuals who "need" to pay back cheaper dollars than those they borrowed.

    I hope Hatzius is right about 0% inflation, but he's dead wrong about it being a problem. The last deflation (reduction in prices) we had was in 1954, and it followed, but did not precede, a recession. He is confusing cause with effect. Deflation does not cause economic problems, but rather cures them.

    And for reference, I was more or less predicting a slowdown as far back as 2003, when I saw signs advertising $300k loans for only $800/month payments in Minnetonka. You don't get that many stupid loans as to justify billboards in Minnetonka without setting some people up for problems when minor bumps occur in the economy.


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