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By Edward Gottesman
Published: February 14 2010 19:56 | Last updated: February 14 2010 19:56
No one has a good word to say about deflation. The ghosts of the Great Depression are invoked even as signs of recovery appear in most economies hit by the financial crisis. Pundits warn that prices and wages may fall and set off "a pernicious round of deflation" if monetary and fiscal subsidies are withdrawn too soon.
Japan's "lost decade" is cited as a cautionary example. Yet bad policies, internal rigidities and demographic trends were primarily to blame for the long-term structural damage after the bursting of the 1980s bubble. Deflation was a symptom, not the disease.
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