And finally, a sensible article about deflation. As we've said before, what is really happening is that the Fed and the Bush administration are pushing us into a seventies style situation: inflation plus high unemployment.
Excellent little piece by Noam Scheiber, who seems to have a head on his shoulders. Greenspan is operating like Nixon's Burns. Pump up the economy, no matter what, for the big election. We don't think this is gonna work. And we think, given the deficit and the trade deficit, that we have parlayed ourselves into a disaster. Ending graf:
The Fed's Open Market Committee cut short-term interest rates by an additional quarter-point when it met this week--even though the previous 1.25 percent rate was already at a 42-year low and Fed officials continue to insist the possibility of deflation is remote. The move was widely expected on Wall Street, if for no other reason than that Greenspan had foreshadowed it while addressing a meeting of heads of the world's central banks earlier this month. "We perceive [deflation] as a low probability, ... but the cost of addressing it is very small indeed," Greenspan told his colleagues, before comparing the Fed's decision to overcompensate against deflation risk to a "fire break," in which firefighters clear land as a buffer for more valuable property. But the Fed is the one starting the fires. And pretty soon that could send America's economy up in smoke.