Why is deflation so hard to fix?

Question

If deflation is the opposite of inflation (correct me if i'm wrong), then why can't it be solved by printing more money? I am wondering because the Japan seemed to struggle with this problem years ago.

Answer 1

to correct Bryan O, lowering the value of the money will make prices of items go up, and the definition of inflation is the money falling in value. inflation does mess with trading (imports/exports), but will INCREASE the growth rates, but decreases our trading power. that is why countries try to control inflation. that is why deflation is bad, deflation causes people to not buy stuff causing the growth rate to be held back.

now printing more money all of a sudden has problems because printing it has very uncontrollable problems. it is kind of like trying to put out a fire by dumping water on it, but in the end you instead cause a flood.
you don't know how much inflation will happen by just prinitng money, there is no theory or no equation for printing x amount of money will increase inflation x%. and in the end you might cause hyper inflation instead, which is much worse than deflation.

that is why the FEDs don't just print more money to increase interest rates, and decrease printing money to decrease interest rates. it is usually controlled by other, more stable means (raising or lowering interest rates on loans to banks, selling or buying bonds)

Answer 2

Because there is a floor to what interest rates can do.

Central banks try to offset deflationary pressures, like you said, by increasing the money supply which decreases interest rates.

However, nominal interest rates cannot drop below 0%.



At this point, you run into something called a liquidity trap. There are entire books written on this topic, and there is still ongoing research, but I'll try to summarize for you:

Now that interest rates are at or near 0%; there is no incentive to save money in a bank as opposed to hording the actual cash - what happens it at people horde cash; keep it out of circulation and worsen the deflationary cycle.

On top of this, if rates are near 0%, future expectations are for interest rates to go up, which causes a decline in bond prices (and people are thus more inclined to hold money).

If you're interested in detailed reading, Paul Krugman has done a lot of research in this area.

Answer 3

no longer likely, a needed economic enterprise can truthfully exchange the money grant to reason inflation or deflation. The trick is to get the splendid opportunities on the splendid situations to advance the economic device, that's drastically greater complicated.

Answer 4

well first off thats backwards, that will only lower the value of your currency, mess with imports/exports, lower growth rates, and cause mayhem with your economy.

and if you go overboard it would just end up with hyperinflation.

its like saying why not just stop printing money to curb inflation, just aint that simple sadly.

Answer 5

Right, you'd think for a little more money we could find a better place to store the car's tire jack too.