Sunday :: Jul 11, 2010

Open Thread

by Mary

Conservative economist warns of deflation and quotes Milton Friedman.

Fears of higher inflation are a persistent phenomenon at central banks after accommodative steps have been taken to cushion the negative impact on the real economy following a financial shock. During the Great Depression, the Federal Reserve allowed the money stock to fall rapidly because, among other concerns, Fed leaders feared inflation. The disastrous consequences, a serious exacerbation of the economic contraction already underway following the aftermath of a bursting bubble, are fully articulated in Milton Friedman and Anna Schwartz's Monetary History of the United States, 1867-1960 (Princeton University Press, 1963).

...At this point in the postbubble transition to deflation, fiscal rectitude and monetary stringency are a dangerous policy combination, as appealing as they may be to the virtuous instincts of policymakers faced with a surfeit of sovereign debt.

Yet, it looks like the deficit hawks need to learn the lesson again on the backs of the ordinary people who face more than a decade of austerity and shrinking prospects.

(via Krugman)

Mary :: 9:18 AM :: Comments (16) :: Digg It!