user396040

Ticking Away: The Inflation Time Bomb

If monetary policy is tight enough, it can reduce inflation even in the face of a big deficit - this is what happened in the early 1980's. The problem is that the price for the reduction of inflation is a severe recession. I think that this is quite possibly a problem down the road, but focusing on it now would be like worrying, in 1942, about the potential unemployment that will result when we win the war and all the troops come home. We have a much bigger immediate problem to deal with - the possibility of a deflationary downward cycle.