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| User Info | Why we will experience deflation; entered at 2007-12-02 16:29:46 | |||
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Shrpblnd Posts: 1202 Registered: 2007-08-06 Los Angeles, CA 
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Quote:What about a NEGATIVE discount window rate? Actually PAY banks to borrow. Wouldn't that fix any amount of deflation? You would think so, but it doesn't actually work that way. Japan has even toyed with this idea. The problem is that no one will actually take the loan, because their is no internal demand to increase production. Who wants to borrow money to build new houses, when they know they can't sell them? Who wants to borrow money to buy a house, when next year, they will be even cheaper? Instead you end up with a carry trade problem. Speculators will borrow money domestically and then invest it over seas in the hope of getting a better return. This does nothing to help the economy domestically, and it causes all sorts of problems maintaining a stable value of the currency. Think of it this way. Let's say you have a kid, and you want him to grow faster, so you decide to feed him more food Sounds like a good idea, but it just doesn't work. You end up with a fat, sickly kid. 2007-12-02 16:29:46
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