Reports today of the likely selection of Timothy Geithner as Secretary of the Treasury may expunge the memory of the three Detroit CEOs arriving in Washington Thursday via their private jets to beg for government money. But both events sap attention from more important news: the consumer price index dropped last month.

Housing prices have been falling for a year. Beginning in August, the prices of commodities such as corn, copper and oil began to drop. The price of automobiles crumpled. In September, stock prices commenced their swan dive, but it is only in the last few weeks that the price of everyday things has begun to tumble.

It has been sixty years since this has happened, but there is no reason to jump for joy. As the Wall Street Journal said in publishing the news, this is the “largest single-month decline since before World War II, a broad-based drop that creates a new challenge for policy makers: avoiding a bout of deflation, a prolonged period of falling prices throughout the economy.”

Deflation, the continuous drop of prices–the exact opposite of inflation–sounds on first acquaintance like a walk in the park on a fine spring day, but in fact it is perniciously destructive. The Journal explains that deflation “would raise real borrowing costs for individuals and businesses. That’s because both must repay fixed amounts of debt, along with interest, even as underlying prices and their own earning power are falling. It could also give households and businesses an incentive to hoard cash, since the value of having cash on hand rises as prices fall. The process can feed on itself: Consumers and businesses delay spending, worsening a downturn and leading to more debt defaults.”

A few months of falling prices may be welcome. After that we have cause to worry. Most economists are saying that the chance of a full-blown deflation is remote if it exists at all, but most economists have been mistaken in their predictions about everything these last few years.

They said the price of housing would not go down; they said that the only place to put your retirement money was in the stock market and that, while things might go slack for a while, there would be no recession. As for the chances of a full-blown depression, perish the thought. A disconcerting number of economists, analysts and prestigious commentators on matters economic have turned out to be woolly-headed professional optimists, stock market shills or house whores for the financial institutions that have brought the country to the edge of ruin.

No matter what these people say, the chances of a major deflation are anything but remote. If history is any guide, curing a deflation will be a more difficult and chancy operation than correcting an inflation. Though it may be painful, we know how to stop inflation. We have no such handy recipes for dealing with deflation.

The last major deflation was one of the hallmarks of the Great Depression. Correcting it was one of President Franklin Roosevelt’s most intractable problems. His first attempt was to take the country off the gold standard and devalue the dollar.

That worked for a while, but cheapening the dollar as a means of stopping deflation is not a path open to President Obama. In 1933 the United States was the world’s largest creditor nation–as China is today; in 2009, it is the world’s largest debtor nation, and as such it dare not devalue its currency, which would be the same thing as cheating the nations and people to whom it owes money. The consequences would be horrific as panicked creditors would sell their US securities in the run to dump dollars.

The New Deal also tried to stop falling prices by suspending antitrust laws so that competing companies were allowed to enter into price-fixing agreements. Such an arrangement can work only if all competitors abide by the agreed-upon prices, and that is not possible without coercion, which was attempted but ruled illegal by the Supreme Court.

The threat of deflation is the result of twenty years of inflationary policies, which made the credit bubbles possible. Their puncture has brought on the price collapse we now suffer through. Such are the wages of governments’ manipulating the values of their currencies instead of making sure they have a steady store of value that neither swells nor shrinks.

Whether or not we fall into a prolonged painful period of deflation depends on the imponderables of a storm-tossed economy. If wholesale wage cuts and layoffs occur over the next five or six months, that will be a sign that deflation is upon us. If, however, incomes and jobs remain steady, we may not get back to prosperity–but at least we will have avoided the disaster of a full-scale fall.