Bank account or cash in a sock under the mattress?

It’s the sock that wins.

As Krugman writes here, referencing this article, the fed has officially dropped the key interest rate to effectively zero.

Of course, being an wannabe-armchair-economist, I just had to go to the fount of wisdom that is Wikipedia. From there I find this speech by none other Ben Bernanke, circa 2002. This current crisis is a irony-hunter’s dream, and I shall indulge myself:

“So, is deflation a threat to the economic health of the United States? Not to leave you in suspense, I believe that the chance of significant deflation in the United States in the foreseeable future is extremely small, for two principal reasons.”

he gives reason 1:
“A particularly important protective factor in the current environment is the strength of our financial system: Despite the adverse shocks of the past year, our banking system remains healthy and well-regulated, and firm and household balance sheets are for the most part in good shape.”

hmm…really?

the second is good though, can’t disagree with it:

“The second bulwark against deflation in the United States, and the one that will be the focus of my remarks today, is the Federal Reserve System itself.”

The next few months are going to be interesting. The miscellaneous -expenses-credit-card-debt is what, imho, is going to be the next thing to burst. The mortgage market went first, with relatively larger loans in question. The accumulated debt of everything else may very well be next, as the deflation situation puts added pressure on people with debt as the real value of money rises.

All aboard the roller coaster.

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