Professor Krugman writes
... it’s quite clear that we’re in serious paradox of thrift territory here. Or perhaps more accurately, we’re in a paradox of debt. Consumers are pulling back because they’ve realized that they’re too far in debt. The economy is shrinking in large part because consumers are pulling back. And the result, almost surely, is to leave household balance sheets worse than ever. Without question the ratio of household debt to personal income has been rising, not falling, as consumers try to save more.INFLATION IS THE SOLUTION. Deflation, despite its wonderful lowering of prices, is bad since America is much indebted. It would be very good for the Chinese, whom the Americans have mortgaged their mothers. Therefore America must inflate the dollar, like it or not.