The author is exceedingly perceptive. This is a crisis of deflation.We haven't seen anything like this since the Great Depression. Just a recession? Hardly. A recession is to a deflationary crisis as a summer breeze is to a tornado.
Deflation activates further deflationary forces in an explosive fashion. The global economy is likely to chaotically collapse until a new bottom in prices is reached.
He is wrong about one thing, though. Monetary economic theory makes clear that expansion of the money supply will halt deflation. It's a challenge politically, because people scream, "That will cause inflation!" Yes, you have to have inflationary stimulus if you want to halt a deflationary cycle.
Really, it's a simple matter of printing a vast number of dollars and distributing them to anyone. If those dollars go to the poor and struggling, suffering can be alleviated quickly and the country (and world) can avoid a whole decade of World Depression II.
Oct 7 2008 - 1:45am