Money is created in a fractional reserve system by lending and defaults cause money to exit the system. The fact that the inflation that the government is gener

Money is created in a fractional reserve system by lending and defaults cause money to exit the system. The fact that the inflation that the government is generating is less than the deflationary effect of defaults explains what you're describing. We should be seeing more deflation and we need more deflation because we need bad debt to be written off as quickly as possible. All the attempts by the government to prop up shaky interests will only delay our pain and it make that much worse. Japan has the largest Debt to GDP ratio in the G7. They have built every bridge to nowhere they can build. The only reason they haven't collapsed is because their culture encourages savings. Right now that country is a portrait of why Keynes was terribly mistaken about virtually everything written in his "General Theory". I'm not sure what the Keynesians would have them do now-where else can they go? I've read they've considered banning cash. I'm not sure this will have the effect they want. Eventually they will need to pay off their debt, let those banks fail, and roll back their government programs. One day they will have no choice in the matter.