31
Oct
08

a less material world

the “d” word (no not that one)

Most economists — Mr. Roubini and Mr. Barbera included — say American policy makers have tools to avert the sort of deflationary black hole that captured Japan. Deflation fears last broke out in the United States in 2003, but the Federal Reserve defeated the menace with low interest rates that kept the economy growing. This time, the Fed is again being aggressive, dropping its target rate to 1 percent this week. And the government’s various bailout plans have also pumped money into the economy.

“If you print enough money, you can create inflation,” said Kenneth S. Rogoff, a former chief economist at the International Monetary Fund and now a professor at Harvard.

But even as American authorities unleash credit, the threat has intensified. Not since the Depression have so many countries faced so much trouble at once. The financial crisis has gone global, like a virus mutating in the face of every experimental cure. From South Korea to Iceland to Brazil, the pandemic has spread, bringing with it a tightening of credit that has starved even healthy companies of finance.

“We’re entering a really fierce global recession,” Mr. Rogoff said. “A significant financial crisis has been allowed to morph into a full-fledged global panic. It’s a very dangerous situation. The danger is that instead of having a few bad years, we’ll have another lost decade.”

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