June 09, 2003

What is Greenspan afraid of and why?:

The Fed is concerned not about "the issue of deflation in the sense of falling prices per se, but the issue of corrosive deflation, that is, a deflation that essentially feeds on itself, creates falling asset prices, which in turn brings down levels of economic activity," the Fed chairman said .. he also said that the Fed knows so little about what would happen in a deflationary environment .. that monetary policy has to be "extraordinarily cautious."

(via Brad DeLong)

Posted by Greg Ransom