The Real Threat of Economic Cataclysm: Deflation

While the Catfood Commission barrels merrily and irresponsibly toward
transferring the last dimes in the pockets of the middle class to the overstuffed accounts of the already obscenely wealthy, the deficit hysterics are ignoring the real danger.

William Greider at The Nation explains:

The economic specter stalking Barack Obama is not the nonsense debate that captivates deficit hawks and witless political reporters. It is the threat of a full-blown monetary deflation that would truly put the US economy in ruin. In a general deflation, everything falls—prices, output, wages, profits. Unchecked, this can lead to another Big D—the Depression Obama claims he has avoided.

SNIP

There is one small silver lining in this grim news. If the Federal Reserve steps up to the deflationary threat, its warnings and actions can give President Obama and Congress a strong opening to change their economic policy too. Forget the stupid deficit scare-mongering. Government must embrace more aggressive fiscal measures—bigger deficits, not little bitty gestures. New stimulus spending is needed to fight off the downward pressures.

That, of course, will require the president to acknowledge what he now denies. The nation is not out of the danger zone. The government must act because it is the only sector in the economy that can lead the way.

Right now, though people are increasingly skeptical, the president is sticking to his optimistic assurances. Prosperity is right around the corner. That was Herbert Hoover's line and it doomed him.

Read the whole thing.