Besides being one of the better titled economics papers that I have come across in awhile, St. Louis Fed President James Bullard's Seven Faces of "The Peril" is an excellent discussion of current U.S. Monetary policy and the likelihood of the U.S. experiencing a Japanese style extended period of deflation.

Bullard's analysis, which is largely based on a Benhabib et al paper entitled "The Perils of Taylor Rules," concludes that current Fed policy of an "extended period of low nominal interest rates" is likely increasing the likelihood of the U.S. experiencing a Japanese style deflation! The best tool that the Fed has to flight the deflation scenario is aggressive quantitative easing.

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