Anyone willing to bet on a devaluation of the dollar when all the debt bubbles burst?

[Galen]

(05-20-2016, 06:54 PM)TnT Wrote: So my fellow Economic Wizards ... what is it?  Catastrophic inflation or catastrophic deflation?

It really does depend on what the Fed chooses to do.  If they decide to inflate at all costs which is historically what bankrupt governments do.  This is why the inflation scenario is more likely.  Some central banks are considering the possibility of Helicopter Money because they can't even conceive of the possibility that Keynesian economics is wrong.

So far negative interest rates seem to have a deflationary effect.  At this point there is little data to work with so the long term implications for this policy are not known.  This makes a certain kind of sense since you would effectively be paying the bank to hold your money and so people would tend to withdraw it as a consequence.  This would cause the multiplier effect of fractional reserve banking to go in reverse.

Prior to government guaranteed deposit insurance, lowering interest rates was like pushing on a string as was the case at the beginning of the Great Depression because the monetary multiplier was running in reverse as demand deposits were withdrawn.  This caused banks to hold more reserves which meant that fewer loans were made which is the channel that printed money usually enter the economy.. .I suspect this is the reason for governments and central banks pushing for a cashless society to forestall such a  possibility.  There is also a secondary effect of of enabling Big Brother which all governments like to do.

Unfortunately people tend to discount the benefits of economic freedom because they never give such issues the amount of thought that they deserve.