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DANIEL SCHORR: To the conventional list of challenges facing the new president, from Guantanamo to global warming, add a new one: the threat of deflation.

MELISSA BLOCK, host:

NPR's senior news analyst Daniel Schorr.

SCHORR: Roughly defined, deflation is too few dollars chasing too many goods. Inflation is too many dollars chasing too few goods. We are more familiar with the menace of inflation. In Germany, after World War I, it helped to set the stage for Hitler's rise. Threatened with inflation, President Nixon broke with his own principles to impose wage and price controls. President Ford's WIN program, Whip Inflation Now, was featured on millions of lapel buttons.

The last time this county experienced large-scale deflation was in the Great Depression. Japan suffered a period of deflation in the 1990's. Now, global prices are falling. One example, fewer cars are being sold. That reduces demand for rubber tires. Rubber-producing countries - Thailand, Indonesia, and Malaysia - shudder as prices tumble. They cut production.

Along with rubber, prices for other commodities have been falling. And at the government's last check, retail and wholesale prices were both softening. Since 2003, when the specter of deflation raised its head, America has managed to stave it off. And the Federal Reserve's recent interest rate cuts, along with the bailouts for several financial institutions, can be seen as anti-deflationary measures.

Will it work? Harvard Professor Kenneth Rogoff is the former chief economist for the International Monetary Fund. He is quoted by The New York Times as saying, "We're entering a really fierce global recession." A significant financial crisis has been allowed to morph into a full-fledged global panic. So the new president faces the prospect of coming into office as goods pile up waiting for buyers, and prices drop, discouraging new investment and increasing unemployment. All of a sudden, all those rosy campaign promises about a resurgent America may not look so rosy. This is Daniel Schorr.

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