Image via Wikipedia“In general the economy is downshifting, maybe to stall speed, or just above stall.”
Just as May’s jobs report appeared deceptively robust, swollen by 411,000 workers hired by the federal government to help with the Census, so the June report appears deceptively anemic, as the government shed 225,000 of those workers.
...the stock markets are caught between indigestion and serious worries.
Others, however, join Mr. Krugman in warning that stagnation could loose another wolf: deflation. “In the winter of 2009, I said the risks are for inflation, not deflation,” Mr. Kasriel noted. “In the summer of 2010, I think the risks are now tilted toward deflation. We run the risk of entering a really bad environment.”
"Deflation refers to a persistent tendency, over an extended period of time, for prices and incomes to decline. If deflation persists, businesses may shut down or reduce their production. As a result, unemployment may increase and wage rates may fall. The spiraling effect of deflation on prices and wages may create pessimism, and the economy could fall into a recession."
A growing number of economists faulted the European Central Bank for what they saw as an inflexible fixation on fighting inflation. Unlike the Federal Reserve or the central bank in Japan, the European Central Bank has taken limited steps in expanding the money supply to counteract the drying up of bank loans. The bank has remained firm in its focus on containing inflation. Jean-Claude Trichet, the bank's president, has said he considers inflation a tax on the poor. And the bank's charter obliges it to serve foremost as guardian of price stability.
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