Has Global Stag-Deflation Arrived?
Policymakers must now worry about a strange beast called “stag-deflation” (a combination of economic stagnation/recession and deflation). That means they also have to worry about about liquidity traps (when montary policy becomes ineffective) and debt deflation (when the rising real value of nominal debts threatens households, firms, financial institutions, and governments).
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NEW YORK – The latest macroeconomic news from the United States, other advanced economies, and emerging markets confirms that the global economy will face a severe recession in 2009. In the US, recession started in December 2007, and will last at least until December 2009 – the longest and deepest US recession since World War II, with the cumulative fall in GDP possibly exceeding 5%.