Monday, May 4, 2009

Debt deflation ?

According to Paul Krugman (New York Times, May 3), falling wages now characterize the US labor market condition. More precisely, he quotes a Bureau of Labor Statistic that indicates a quasi stagnation of wages in the private sector during the first quarter of this year. He thus admits anticipating rather than already observing a possible fall of wages. It could happen later in the year. If confirmed, such an evolution would increase the burden of interest payments and debt repayment, dragging down incomes, consumption and the economy in the coming quarters, in a debt-deflation cumulative process. Krugman’s advice: more stimulus, more decisive action on the banks, more job creation …

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