> But I think if we have more rounds of QE and use the money for UBI, we'll get to Japan levels of disenchantment for 20 years (or perhaps more because we have far more debt to repay).
What happened in Japan was gradual deflation -- certainly something we want to avoid, but the opposite of what creating money by fiat does.
The problem we currently have is that some assets (especially housing) are overvalued. There are two quick ways out of it and a gradation of slow ones.
The first is that we just force a housing crash by instantly setting interest rates above 5% and suffer the consequences. This is probably the worst option. Its primary virtue is that it revalues housing and interest rates to more realistic numbers right now. Its short-term costs are very high.
The second option is better but still not great, which is that we do the first one and at the same time instantaneously create a few trillion dollars in cash by fiat and hand it out, so that housing prices crash in real dollars but stay the same in nominal dollars, and the price of everything else (including wages) has a big one-time jump to catch up. Then nobody is underwater on their mortgage, nobody defaults, banks don't fail, etc. But it would still be very disruptive and screw over one side of every fixed-price contract on anything, require all prices to immediately be renegotiated, etc.
The third option is to do the second option in slow motion. Eliminate the mortgage interest tax deduction, slowly raise interest rates, generally encourage people to take out smaller mortgages, all while creating new money (and transferring it to citizens without obligation) to offset 1:1 the destruction from the net debt reduction. The faster you want this to happen, the higher an annual rate of inflation you need. It may or may not cause nominal housing prices to actually go down depending on the pace, but real housing prices would decline until they're reasonable again. It's much less disruptive but takes longer.
This is still the best option even if you demand quick results, because even doing it at an accelerated rate could complete the task in less time than it would take for everything to recover from the massive shock of trying to do it instantaneously. In other words, if it would take five or ten years to recover from doing it all at once then it's less disruptive to do it gradually over the course of the five or ten years it will take regardless.
> What I would like to see is some bad actors really getting wiped out, our GDP reduce a bit, asset values go down. That will cost a few jobs in the beginning.
The difficulty is in restricting the damage to bad actors. It's obviously undesirable to wipe out everyone who bought a home at inflated prices just because they had to live somewhere, or the retirement accounts of everyone whose company IRA only gives them a choice between mutual funds that all have similar exposure.
> But, in some time deflation will reach a plateau (because everyone needs to buy food, but that's not as low as we need to get).
The problem with deflation is that it's a destructive feedback loop.
First people have less disposable income, e.g. because interest rates are higher and they have to spend their salaries on interest rather than consumption. Then they reduce optional consumption, and those industries downsize and people lose their jobs. Then those people stop buying everything except necessities because they have no jobs, so more other people lose their jobs. With unemployment on the rise, wages fall. With lower wages, there is even less consumption, so more people lose their jobs or have to take lower wages, and so on.
Meanwhile investors notice that "holding cash" is suddenly a profitable low-risk investment strategy, so who needs to invest in medium-risk enterprises that generate value and create jobs? Not only does the stock market crash (along with everyone's retirement accounts), normal job creation ceases and market failures become abundant because no one can raise money to start a business or enter a market. The worse the markets do, the more people want to hold cash instead and the worse the markets do.
Meanwhile the real value of all existing debt increases, forcing people to default, and defaults accelerate deflation.
General deflation is utterly catastrophic.
If you want to raise interest rates, either there has to be significant inflation already happening to offset the deflationary effect, or you need to offset it with a countervailing force, i.e. print as much money as it will destroy.
> Once plateaued, it would allow savers and risk takers to start investing in businesses themselves (these are the guys today with non-speculative money but unable to invest in overpriced assets).
You don't need deflation for this. The thing that causes the high asset values is really the low interest rates -- it's the same as the housing market. If risk-adjusted returns are higher than interest rates, people will borrow money and use it to bid up returns-yielding assets until they're not.
If you want higher returns you need higher interest rates, but raising interest rates doesn't have to cause deflation as long as the money the higher interest rates destroy is recreated and used for something else -- like a UBI. Or even just tax reductions and the like.
> Ultimately, bad actors from 80s, 90s and 00s are still alive and still investing right now. If the moral hazard is always solved by inflation, guess how many more speculative bubbles we will have.
Deflating bubbles through inflation doesn't actually reward the people who pay too much, because the mechanism of operation is that the nominal price of the overvalued thing stays about the same while the price of everything else increases. The people holding the overvalued asset pay by having negative real returns, even if the nominal returns are zero or slightly positive.