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Won't less money will be 'printed' (i.e. created by banks via lending) as mortgages fall?
by lukas099 4y ago
Won't less money will be 'printed' (i.e. created by banks via lending) as mortgages fall?
- imtringued 4y agoYes and all those existing mortgages have to be paid off which reduces the money supply. You actually have a system that ratchets itself back the moment people stop borrowing. The problem is that debt deflation causes the velocity of money to drop making it harder to pay off debt. The central bank is perpetually scared of debt deflation so it targets a 2% inflation rate. If you could implement a -2% negative interest rate you wouldn't need inflation targeting at all. Debt deflation wouldn't result in a stagnant economy with unemployment making it easier for governments run a balanced budget or short term austerity without ill sideffects.