Low inflation might be the first step towards deflation. Many economists would argue that deflation is a worse situation for the economy because it leads to a sharp drop of consumption and therefore a huge recession follows?
Oh there are tools and policies that could be implemented to address deflationary pressure. They're just extremely heavy-handed, draconian, political landmines.
Negative yields from the central bank forcing lenders to start loaning money, massive QE and the fed stuffing its balance sheet to inject liquidity into the market, currency manipulation...
Some of these are the correct decision to some degree in a crisis (the Great Recession, for one) but they all present a lot of risk down the road. Sovereign debt would almost certainly explode, which would put you in the position of needing to grow your way out of it before you run into an inevitable debt crisis down the road....there's a strange sort of lossy feedback loop that does make this more feasible and less of an out and out gamble, since these policies will also inflate the value of securities, and real property substantially, though.
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u/StuartMcNight 9h ago
Low inflation might be the first step towards deflation. Many economists would argue that deflation is a worse situation for the economy because it leads to a sharp drop of consumption and therefore a huge recession follows?