Reply to post: Re: QE was used to increase inflation

So why the hell didn't quantitative easing produce HUGE inflation?

Anonymous Coward
Anonymous Coward

Re: QE was used to increase inflation

If you wanted to buy a new car which cost $30K but you knew next year it would cost $28K and the year after $26K and the year after that $24K wouldn't you be more likely to delay purchase as much as possible to save money? On the other hand, if you know it will be $32K next year, $34K the year after you'd be more likely to want to buy it sooner. People reduce spending in a deflationary economy, which means companies have to lay off workers, which reduces spending further which means more layoffs. It is a vicious cycle and there's practically no way out.

When we were in a gold standard the only way we got out of deflation was when large deposits of new gold was discovered (i.e. increase in money supply) and since we got off the gold standard deflation has only happened once and it took the largest stimulus plan in the history of the world to break the grip of global deflation in the 1930s. It was called WWII, and isn't a response we'd like to have to resort to again (it was probably not only all the spending, but the fact that the industrial base of the entire world aside from the US was mostly in ruins by 1945)

POST COMMENT House rules

Not a member of The Register? Create a new account here.

  • Enter your comment

  • Add an icon

Anonymous cowards cannot choose their icon