Eli5: why can’t we just “deflate” money, and why is it bad?
In: 620
Well we CAN. We can either:
A) Destroy money. …But whose money are you going to destroy? A lot of people wouln’t like that very much.
B) Stop printing more money. Not as fast and immediate, but it would combat inflation. Also the government would have to balance it’s budget and would immediately go broke, causing all sorts of trouble.
C) Take peoples money and give them an IOU for more money in the future. IE, sell bonds. Which is what the FED is doing right now. They bought a hell of a lot of US bonds during the pandemic and republican power, and now they’re dumping them now that “the plague is over” and we have democrats in power. Coincidentally, every bond they sell is directly competing with the US government trying to sell bonds to get enough cash for their budget.
All of this pushes down inflation, and they could simply stop or ease up once it gets back to the target 3%. No one would actually want to deflate money (A negative inflation rate, where money gets more valuable with time) because it discourages people from spending. That’s the exact opposite of what money exists for.
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