Who’s Afraid of the Big Bad Deflation? The Fed Vindicates Paul Krugman

93762519 Whos Afraid of the Big Bad Deflation? The Fed Vindicates Paul KrugmanFor a long time now, Paul Krugman has been issuing constant warnings about deflation, that quiet evil twin of inflation. Today, right after Euro Pacific Capital told the world not to “lose sleep over deflation,” the Times reported that James Bullard, president of the St. Louis Federal Reserve Bank, has woken up in a cold sweat.

Formerly an inflation hawk, Mr. Bullard now thinks inflation might not be so bad after all. A prolonged deflation like Japan’s, which incidentally Mr. Krugman loves to talk about, suddenly seems to Mr. Bullard like the real danger. He’s evidently had a vision of a a “Japanese-style deflationary outcome within the next several years,” and is starting to care more about things like spending money to cut unemployment.

Meanwhile, over at Business Insider and Huffington Post, Michael Pento wants to keep the budget tight: “it is inflation,” he declares, “that remains the clear and present danger.” He faces Mr. Krugman’s arch nemesis with open arms: “Deflation… I say bring it on!”

One of them will be wildly wrong.