LJ-
Deflation is an economy killer. Those cuts in prices in reality means little or no profits, and often losses to manufacturers, wholesalers or retailers. Losses quickly translate to job cuts. Those job cuts then snowball into more losses at the retail sales end, which mean more job cuts until the economy reaches an equilibrium.

Capital and thus credit is the lifeblood of a capitalist economy. The economic destruction caused by the frozen credit markets has quickly spread beyond the housing sector into almost every sector of the economy. Our Dear Leader’s sily new New Deal does not address the economic problems at hand at all. It’s a joke.

Fred is right; at some point the Fed will resort to just printing money. But the real question is how much government borrowing will the markets take. Nobody knows. We may be headed into a situation with deep deflation, enormous job losses, higher interest rates, tight credit and a debased currency all at once.

BTW, I tend to disagree with Peter. The sooner conservative Republicans get control on Congress the better. Two years are much better than four. We may not be able to wait four years to remove Obama. There may be nothing left.