[quote=briansd1][quote=sdduuuude]
Not so sure it staves it off. Possible that QE1 staves it off, and maybe even QE2, but the more you go into debt, the higher your interest payments. Get the interest too high and the likelihood of the deflationary collapse increases.
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I’m confused how more QE (money printing) would cause a deflationary collape.
Dispite QE1 and QE2, interest rates are now lower. Quantitive Easing actually avoided a deflationary spiral.
[quote=sdduuuude]
I’m not a fan of either the deflationary spiral or hyper-inflation theories but I do think deflation has a bit part to play yet and could come back more than once in the next few years.
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If deflation “has a big part to play and could come back more than once in the next few years,” then more QE is the way to address that deflation.
[quote=sdduuuude]
The more QE’s that we see, the harder it gets to pay those bills.[/quote]
If debt overhang is the problem, inflation is a good solution. Debt remains fixed so inflation makes it easier to pay off previously incurred debts.
Remember that QE is the Federal Reserve printing money, not the Federal Government selling more bonds.
Actually, while we are talking policy, the Federal government should borrow money very cheaply now to build infrastruture and stimulate the ecnomomy. Higher future rates will not be a problem if there’s a plan to pay down the debt once the economy recovers.[/quote]
That depends on who owes the debt, and who stands as the beneficiary of the QE. Americans are in debt at all levels — from the federal government, to the lowest workers. Unfortunately, the money that’s being printed is largely ending up in the hands of speculators in the financial industry — it is NOT ending up in the hands of those who owe the debt (government or workers). This will NOT help us pay off our debts. As a matter of fact, their gambling has been increasing prices for goods needed by those highly indebted workers, which makes it even more difficult for them to pay off their debt.
What we need is asset price deflation and a repudiation of a lot of our private debt, which will increase the purchasing power of U.S. workers. Wages are far stickier than asset prices, so **IF we allow the deflation to happen quickly,** I believe that workers will see their purchasing power increase, while still being able to hold onto their jobs. They might see wage decreases, but I believe that **if the deflation is allowed to happen quickly,** wages will go down at a slower pace than prices for goods. Corporations are sitting on record amounts of money, and have been making record profits — they have a buffer. Once prices have bottomed (they won’t go to zero, as there are always investors who are looking for an entry point, and there is a fundamental value for goods and services in an economy), investors will move in, true demand can be reassessed, and we can rebuild from a solid foundation.
