Deflation can be particularly dangerous when a financial system is shaky, with household and corporate balance sheets in poor shape and banks undercapitalized and heavily burdened with bad loans.
History has demonstrated time and again the inherent resilience and recuperative powers of the American economy.
China is growing very quickly and is clearly becoming an important player in the world economy.
If Australia finds it has a strong Australian dollar, and it has higher unemployment, then it would have to respond, and that would either be by increasing domestic demand or by weakening its own currency.
To achieve a more balanced international system over time, countries with excessive and unsustainable trade surpluses will need to allow their exchange rates to better reflect market fundamentals.
Because a person has to be either working or looking for work to be counted as part of the labor force, an increase in the number of people too discouraged to continue their search for work would reduce the unemployment rate, all else being equal - but not for a positive reason.
