Sir, John Tatom is certainly correct in reminding us that there are many states in the world where moderate deflation is good for the global economy ("Deflation isn't such a bad thing", September 26). However, he goes seriously astray by not distinguishing those characteristics of the present international economic cycle that make deflation a real threat to global prosperity. By so doing, he provides support to the unwarranted complacency at the Bank of Japan and at the European Central Bank that is keeping global monetary policy too tight.

The characteristics that distinguish the current global economic cycle from earlier postwar cycles are the synchronised slowing of the main global economies; the aftermath of the bursting of large asset price bubbles; and the exhaustion of the room for fiscal policy easing in each of the Group of Three economies.

In this context, as well as that of an at best tentative global economic recovery to date, real interest rates will need to be kept at very low or even negative levels for a prolonged period if a sustained global recovery is to be achieved. Yet, the downward pressure on prices that will result from the persistence of what are large output and labour market gaps would thwart the attainment of low real interest rates.

Mr Tatom's complacency about the deleterious impact unexpected deflation could have on banks' balance sheets is also perplexing. Japan's experience in the 1990s underlines the havoc falling property prices and rising corporate bankruptcies associated with deflation can wreak on bank solvency.

Desmond Lachman is a resident fellow at the American Enterprise Institute.