Economist Paul Krugman Discusses European Debt Deflation

In an April 19 New York Times opinion piece, well-known economist and Princeton professor Paul Krugman raises a red flag about the European Union's low-inflation rates.

He explains why the benign low-inflation view of some European Central Bank supporters is 100% wrong, and says debt deflation is already underway in the eurozone.

Here's an excerpt from Krugman's piece:

As I noted yesterday, Sweden is now experiencing deflation, which is bad for a number of reasons -- including the fact that household debt is very high, and deflation (or even low inflation) increases the burden of that debt. (This makes it even more ironic that the Riksbank's justification for ignoring Econ 101 and raising rates in a depressed economy was concern about excessive household debt and financial stability.)...

The thing is, this is a problem throughout Europe. You sometimes hear defenders of the ECB declaring that low overall inflation isn't a problem, because it's mainly caused by very low inflation or deflation in debtor countries that are in the process of adjusting. This is 180 degrees wrong: low inflation is a much bigger problem than the aggregate number suggests, precisely because it's concentrated in debtor nations, and is therefore imposing a bigger burden on debtors than the overall number reveals.

You can read the entire article by following the link below.