Why Deflation is the Nightmare for Central Bankers

Executive Summary

• The private banking interests and therefore the Fed will do anything to keep debt deflation from occurring.

Introduction

Deflation is a nightmare scenario for central banks because it restricts their ability to stimulate the economy. For example, with the low-interest rates in the US (combined with the need to massively subsidize private banks), the Fed has engaged in quantitative easing (QE), where the Fed buys bad assets from the banks, which is supposed to stimulate the economy. However, under a debt-free currency, deflation nor inflation are issues. See the explanation of the entry on this website of Money as a Tally.