The economy may not seem very dramatic to some, but it may just get too dramatic for all of us. Paul Krugman's column is a must read.

Fear of a Quagmire?
by Paul Krugman

Suddenly the d-word is on everyone's lips. Last weekend the International Monetary Fund released a rather ominous report titled "Deflation: determinants, risks and policy options." The report made headlines by suggesting that Germany is likely to join Japan in the falling-price club. Alan Greenspan hastened to reassure us that the U.S. isn't at imminent risk of deflation. But alert Greenspanologists pointed out that he seemed to hedge his bets, and the fact that he even felt obliged to discuss the issue showed that he was worried.

Though talk of deflation fills the air, most of that talk is subtly but significantly off point. The immediate danger isn't deflation per se; it's the risk that the world's major economies will find themselves trapped in an economic quagmire. Deflation can be both a symptom of an economy sinking into the muck, and a reason why it sinks even deeper, but it's usually a lagging indicator. The crucial question is whether we'll stumble into the swamp in the first place — and the risks look uncomfortably high.

The particular type of quagmire to worry about has a name: liquidity trap. As the I.M.F. report explains, the most important reason to fear deflation is that it can push an economy into a liquidity trap, or deepen the distress of an economy already caught in the trap.
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How Much is Ten Trillion Dollars, Really?

Here's one way of bringing it down to personal scale. There are roughly 100 million households in the USA. $10,000,000,000,000 divides out to $100,000 per household. (If you live in a nicer-than-average house, help yourself to a bigger-than-average slice of the negative pie.)

Here's a more concrete benchmark: the replacement cost of America's housing stock -- every house, duplex, condo, apartment and trailer, from sea to shining sea -- is roughly $10T.

Picture your home swept away by some natural disaster -- right down to the last foundation block. Picture your neighbor's home, likewise, and everybody's home.

Picture Mr. and Mrs. America crawling out from the rubble, surveying the damage, trucking down to Home Depot for load after load of bricks and boards, rolling up their sleeves and investing the sweat equity it takes to put things back the way they were. That's a ten trillion dollar job.

Look at it another way, as the Concord Coalition's Pete Peterson did in recent congressional testimony: "In just two years, America has witnessed a $10 trillion projected deficit swing".
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David Horsey