The deflation worry ...

If I were not a half-baked economist, I suppose I would not worry this much about the deflation threat. 
But, wait, even real economists are worrying about deflation. A lot! 
Paul Krugman has often written and blogged about this; in his latest post, Krugman notes:

Picture America in, oh, 2014: unemployment is still around 9 percent, prices are falling about 1 percent a year. Many economists might look at that situation and say, well, deflation is stable, not accelerating, so we must be at the natural rate of unemployment — move along, folks, nothing to see here.
So it’s time to start focusing on downward rigidity and what it implies. After all, all indications are that we’re going to be dealing with a depressed economy for a long time to come.

Why all the worry?  What is the situation on the ground, so to speak?

The latest U.S. data are sobering: Consumer prices overall have declined in each of the last three months, putting the inflation index in June just 1.1% above a year earlier. The core inflation rate — a better gauge of where prices are going because it excludes volatile energy and food items — has dropped to a 44-year low of 0.9%.

That's well below the 1.5%-to-2% year-over-year inflation that the Federal Reserve likes to see, and some Fed policymakers have raised concerns about the rising risk of a broad decline in prices.

The WSJ--yes, that darn pro-business publication:

The good news is that the Fed might not need to fear a Depression-style deflationary spiral. The bad news is that if the U.S. does fall into deflation, it could be stuck there for many years like Japan, and suffer the subpar growth that has gone with it. And because deflation is so poorly understood, policy makers could discover they have no good solutions.

How does this begin to show up? An example:

Safeway executives said the strength of that push on pricing caught them by surprise.
"Deflation continues in price per item and is not expected to significantly improve until the fourth quarter," said Chief Executive Steve Burd, who oversees supermarkets including Safeway, Vons and Dominick's.
Burd acknowledged that retail deflation was much greater than expected in the second quarter and drove a decline in identical-store sales.

Stagflation cometh? Already here?

The next reading of the CPI comes out in mid-July. A negative number will mark the third straight decline and will surely inflate the volume of talk about deflation. (As the historical data show, we haven't seen four straight monthly declines in the CPI since the 1930s.) But when considering the risks of deflation, we shouldn't look at the CPI in isolation. The phenomenon of prices falling modestly at a time when the economy as a whole is growing at a 3 percent click, as it is today, isn't much to worry about. "The combination of slow growth or stagnation and deflation is the thing that's scary," says Michael Bordo. In other words, look out for stagflation.

That is enough to get me worried all the more about a disastrous combination of employment stagnation and deflation, about which I have blogged enough ... Here is a post from back in October 2008 where I quoted extensively from Dr. Doom himself!

Speaking of him, here is Roubini's comical response to Financial Times' quick survey of summer vacation plans:

Where are you going on holiday this year?Recently I have lived like the George Clooney character in Up in the Air (a film I watched on a plane). If I get a vacation this summer it would possibly be a tour of crisis-hit countries – if I am still allowed in them: Spain, Ireland, Iceland, Latvia, Greece and, maybe, the oil spill-ridden US Gulf Coast.

Worry about this quote on the economy :(

the United States and Europe are well on their way toward Japan-style deflationary traps.

That is Paul Krugman's line, from his NY Times column.  As I have noted many times over in this blog, this potential combination of deflation and high unemployment is a nightmare scenario that, for whatever reasons, most policymakers are not that much worried about--despite the loud cautionary notes from the likes of Krugman. Like this blog entry from two years ago quoting Roubini--though, that was in the context of oil prices!
So, who will get hurt the most?

The answer is, tens of millions of unemployed workers, many of whom will go jobless for years, and some of whom will never work again.

Recession, Stagflation, or Depression?

You name the pick :-(

Nouriel Roubini warns about the coming global stagflation:
Today, a stagflationary shock may result from an Israeli attack against Iran’s nuclear facilities. This geopolitical risk mounted in recent weeks as Israel has grown alarmed about Iran’s intentions. Such an attack would trigger sharp increases in oil prices – to well above $200 a barrel. The consequences of such a spike would be a major global recession, such as those of 1973, 1979, and 1990.