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"After spending 2001 confronting the first recession in a decade and the economic aftershocks of Sept. 11, Alan Greenspan and his colleagues at the Federal Reserve took some time a few months ago to ponder the possibility of another crisis."
"The Fed itself has pushed official rates in the United States to their lowest level in four decades, with no assurance that the nascent recovery will continue — and with any number of threats hanging over the outlook, including a spike in oil prices and the risk of further terrorist attacks."
"Should the economy become so weak that it experiences deflation — a general decline in prices — even holding interest rates steady amounts to tighter monetary policy."
"But what if prices are falling? In that case, inflation is, arithmetically speaking, negative. So if the nominal rate was 1 percent and the deflation rate was 1 percent, the real interest rate would be 2 percent."
"In such a case, the economy could become prone to a deflationary spiral, in which a lack of demand, falling prices and paralysis in nominal interest rates lead to more restrictive financial conditions, weaker demand and further downward pressure on prices."
2:05:09 PM Google It! 
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