Deflation pressures mounting

Forget the stock market. (Okay, that’s hard to do.) But Paul Krugman at the New York Times has a truly scary chart. It’s rising real rates–the cost of borrowing is surging.

Krugman has been spot on in his articles. The Fed and the federal government have got to take the rise in real rates seriously.

How sereiously? Under normal circumstances, GM should be allowed to go under. But these are not normal times. The government may want to push GM into bankruptcy, for instance, but then it needs to provide a lot of back-up financing. The private sector certainly won’t.

It’s time to boost fiscal spending even more.