Friday, August 31, 2007

Paul Krugman May Have Been Right

Way back when the housing bubble started growing, Mr. Krugman published a column worrying if the US will be following the path Japan stumbled down resulting in a recession and inflation at once.

Now, with the bubble deflating, we know there's inflation. Just look at gas prices or the price of milk. And now this story hits. I was a huge macroecnomics nerd in business school so I know that cutting the discount rate is the first step in battling a recession. A recession is when people stop spending money which then makes the economy grind to a halt. To help people spend money, banks can make more money available especially if they don't have to pay a high discount rate. So Mr. Krugman may be the depressing magic eightball of our economic future.

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