Deflation according to mainstream economists is undesirable because of a bug in labor markets - "downward nominal wage rigidity". Since businesses cannot cut s

Deflation according to mainstream economists is undesirable because of a bug in labor markets - "downward nominal wage rigidity". Since businesses cannot cut salaries (wrecks productivity, due to the morale hit), they hire less or lay off people. And in a depression many enterprises must to one of these things to remain profitable (they cannot increase prices, obviously). This right now has a bigger effect on family incomes than the small gain from lower prices on goods. If productivity is rising rapidly and there is more or less full employment, the opposite case would be true. Inflation is good in such cases, because if wages don't change in dollar terms, whey will be cut in real terms, allowing for more employment. Debt is part of capitalism, just like steel is used as building material. Talking about debt in moral terms as good, bad or whether there is a right amount (for whom?) isn't productive. Speaking about government debt, right now Eurozone countries have to pay very low interest rates; once they rise too much or full employment is reached, Krugman has said many times that he will advocate restraint. When conducting monetary policy the Fed buys government securities from the public, not from the Treasury; it pays market prices for it. There is still huge demand for US government bonds (mostly in the USA, thats why "money we owe ourselves". It does remit its profits to the Treasury, but that is a very small percent of the government budget. When the expansion of the Fed balance sheet is so big that it becomes a price setter for government bonds (in dollar terms of course!), then you could say it is printing money to cover deficits. It did that from 1945 to 1951 to pay for WWII and inflation did rise to 25%. So everyone will notice if when the Fed starts "printing money to cover deficits".