The fear of deflation is sweeping across the globe. By ‘globe’ I really mean the clique of elite policy makers, bankers and the economists they employ. The rest of us mere mortals are positively chuffed about deflation – whoever said “no” to lower prices? So why are policy makers and economists so scared of deflation? […]
Setting interest rates artificially low causes the demand for credit to surge, while the supply of credit falls, resulting in a shortage of real loans. The only sound remedy to this is to let interest rates rise to their market-determined level or face economic disaster.