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Comment by thrwawy12345 | Hacker News Reader

> Which means we must have narrowly averted a truly horrific situation as a country.

Citation needed. I don't understand the logic here.

Adding $10 Trillion should have created a great deal of inflation - much more than we see. Therefore, if it were not added, we probably would see much worse than no inflation - we would see significant deflation. That's far more ruinous than mild inflation is.

Inflation is so low right now because the Fed is artificially forcing low interest rates. Dollars in circulation has little impact on it.

> Inflation is so low right now because the Fed is artificially forcing low interest rates. Dollars in circulation has little impact on it.

Inflation in the short term has more to do with elasticity of supply than demand (unless demand spikes hugely). Low interest rates don't have much to do with it (low rates are usually a tool to stimulate demand, but they only work when you don't have a pre-existing debt bubble that must be deleveraged).

Why is deflation worse than inflation? I like it when the things that I buy get cheaper.

Deflation benefits those with savings and fixed-income and inflation benefits those with a large amount of loans - as well as making government debt easier to repay (at the expense of those with savings, treasury bonds and holders of government debt).

If you have deflation together with a large debt bubble (like we have now), many people & companies will have to default. Not saying it's good or bad, but politically that kind of pain is intolerable (the politicians who support it would get voted out)

Worse: The default process leads to people selling stuff for whatever they can get (either the debtor, trying to avoid default, or the lender, trying to recoup losses). That drives down prices, causing more deflation. This cycle destroys both people and businesses. Look at a crash in the 1800s to see how this plays out. It's horrible. It's very destructive.

But you hate it when the things you sell get cheaper. That's the problem. Even if you're an ordinary employee rather than an owner, you get squeezed when the owner makes less money. Their debts remain fixed while their income decreases.

If that leads to your income being reduced (or you're downsized), you have less to spend and your contribution to demand goes down. That starts the process all over again with whatever you consume. The worst case is a "deflationary spiral" where that keeps going round and round.

It's widely thought that a small (2%) inflation avoids that spiral by encouraging people to spend their money today rather than sit on it. It slowly eats into fixed incomes, which isn't great, but in general it keeps the economy moving for those who are employed. Ideally it pumps the GDP faster than inflation, allowing us to compensate for those on fixed incomes.

Because if you buy a $300k house and need to move 10 years later, and only sell it for $150k, you still have a big chunk of the loan to pay off.

Not OP. I think the idea is that we dumped so much money into the economy and had so little inflation now, that not dropping the money would have meant severe deflation.

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