Re:What Economists Still Don’t Get About the 2008 Crisis
by TheCowboy on Monday July 30, 2018 @03:08PM
(#17647068)
I haven't studied QE specifically so I can't address that directly, but it might be helpful to think about what inflation is and how this behavior changes in a depression. Inflation is an increase in the general price level of all goods and services.
The global economy left to its own devices would likely have entered a full-blown depression, and deflation usually accompanies this. The decrease in demand across the economy puts a great downward pressure on prices, this puts pressure on decreasing costs, this puts pressure on decreasing wages, and so on. You have a real threat of a deflationary spiral as demand further dries up due to people having less money to spend on goods and services.
So, as a lot of economists argued, there was a significant threat of a deflationary spiral facing the economy, more than any threat of inflation getting out of control, which had already been low to begin with.
The global economy left to its own devices would likely have entered a full-blown depression, and deflation usually accompanies this. The decrease in demand across the economy puts a great downward pressure on prices, this puts pressure on decreasing costs, this puts pressure on decreasing wages, and so on. You have a real threat of a deflationary spiral as demand further dries up due to people having less money to spend on goods and services.
So, as a lot of economists argued, there was a significant threat of a deflationary spiral facing the economy, more than any threat of inflation getting out of control, which had already been low to begin with.