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OT: Economics ... Deflation worries
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Posted by J (more from J) on Sat, 14 Dec 2002 11:43:15 Share Post by Email
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Hi,

There is something which I'm not understanding about deflation worries.
I know that it could be a serious concern. If money becomes more
valuable, people who have to pay interest on loans get shafted.
So, essentially real interest rate is higher than stated interest rate.

Well, the way to fight deflation is to increase money supply. One
knob is Fed-funds rate in the U.S. If the Fed runs out of Fed-funds rate
leverage (i.e. make the overnight lending rate 0%) and deflation is still
a worry, can't the government increase money supply the old fashioned
way ... by printing money?

I know there's something I'm missing because I'm told that Japan has
been suffering from deflation and a country of 100 million cannot overlook
something so seemingly obvious. So, there must be a catch.

So, why can't a country fight deflation by increasing money supply by
printing more money?

Also, does the U.S. benefit from the dollar being world currency? So,
when U.S. runs a trade deficit, the money supply in the U.S. decreases.
So, U.S. prints more money? In this way, trade deficit has little or
no effect on U.S. economy because the dollar is de-facto world currency?

thanks

Jae

posted by 172.193.198...
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