Inflationistas v Deflationistas – who is right?

Two prominant economists seem to differ – Richard Berner of Morgan Stanley and Jan Hatzius of Goldman Sachs. Jan Hatzius is a reknowed pessimist amongst Wall Street economists. It is his belief that later in the year the US economy’s GDP will drop significantly which will further increase unemployment. This ultimately sees deflation becoming a serious threat to the economy. On the other hand, Richard Berner believes that GDP will pick-up by the end of the year and reduce the unemployment figures. Because of this he states that deflation is not a serious issue for the US economy.
In Wall Street circles supporters of these two scenarios are referred to as deflationistas and inflationistas. Deflationistas want a new round of stimulus spending by Washington is urgently required to stave off a Depression-like cycle of falling prices and wages that is difficult to reverse once it is set in motion. Inflationistas focus on the extent that stimulatory policies of low interest rates and increase budget deficits will ultimately have an effect on inflation. This in turn will increase increase rates. Click here for the article from The New York Times.

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