Robert Samuelson, Tuesday, June 24, 2008:
The Return of Inflation?: Forget the housing collapse, the "credit crunch" and -- in isolation -- higher oil prices. The real economic menace may be resurgent inflation.... Bernanke's comforting analogy is misleading. The question is not whether it's 1975; it's whether it's 1966.... The Fed's easy-money policies have global effects.... [D]espite the U.S. slowdown, much of the world is booming. Developing countries, now about half the global economy, have been growing at about 7 percent since 2002. Higher inflation is a worldwide phenomenon. In China and India, it's about 8 percent. In Russia, it's 15 percent....
Combating inflation is rarely popular or easy, because it involves slowing the economy -- even inducing a recession -- to relieve pressures on prices and wages. Unemployment rises. There are usually plausible reasons for waiting.... [S]imilar arguments for delay were made in the 1960s, with disastrous results.... The Fed is holding its key interest rate at 2 percent, well below prevailing inflation. In the 1970s, this condition stoked inflation. An indecisive Fed risks repeating its previous blunder...
Robert J. Samuelson, Monday November 10, 2008:
A New Specter: Deflation: in the past two months, deflation has suddenly become conceivable... it's much more menacing than most people realize.... A mild deflation -- like a mild inflation -- would be barely noticeable, and even pleasurable. Who doesn't like lower prices? But beyond a few percentage points, deflation can create economic havoc by forcing debtors to repay loans in more expensive money and causing consumers to postpone purchases.... Obama and his fellow leaders should worry. Since mid-September, economic conditions have deteriorated badly.... By all odds, this signals a recession that, though severe, fits within the post-World War II experience. It will suppress inflation, not trigger deflation.... Still, this crisis has repeatedly confounded "experts."... So, there's an outside possibility that we're on the doorstep of a more dangerous global downturn. Something significant happened in mid-September.... [W]e do know that a severe deflation could abort any recovery.... The specter of deflation explains much of what many governments are doing. Government central banks -- the Federal Reserve, the European Central Bank, the Bank of England -- are cutting interest rates. But given the reluctance of many banks to lend and many households to borrow, the effect may be muted. A "stimulus package" of more spending increases and tax cuts would provide extra insurance against an economic free-fall. The trick for Obama and other leaders is to ensure that new commitments are temporary -- and don't worsen grim long-term budget outlooks.
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