[quote=CA renter]Depends on why deflation is happening. Look at the PIIGS, for example, or even the U.S. when the financial crisis was coming to a head. Rates went up drastically until the central banks of the world intervened together.
What happens when/if central banks run out of ammunition? We’re already at ZIRP and with each successive QE intervention, the effects become smaller and smaller.[/quote]
Interest rate is something the central banks set they only raise rates when there’s inflation. Your example about when happened in the US when financial crisis was coming is a prime example. When the data show that there is negative growth/recession, they dropped rate. They only raised rates when the data was still showing growth/inflation. Tell me, what did they do in 2008-2009?
As for PIIGS, that’s a different scenario, because PIIGS is only part of the EU and the European central bank have more to worry about than just PIIGS. That’s like saying, a few states w/in the US is seeing recession, do you think the Fed will lower rate?
