The main reason why debasing a currency to offset price deflation is problematic is because it's immoral.
I was just thinking that the thread was missing some about-backwards crackpot analysis
. Of course, the reverse is true--allowing deflation to propagate via lending curtailment and destruction of enterprise value and avoidable layoffs etc. is what is immoral. The reason
why is that it is contrary to, and negligent of a central bank's mandate which is a publicly enshrined directive set up in the interests of the society.
money creation is a de facto transfer of wealth from the existing holders of the debased currency to the issuers of the new currency
As you know from previous discussions which you were compelled to agree with eventually, no transfer occurs (which would anyway be in favour of the
owner of new currency not the issuer) unless unanticipated price level shifts occur because of it. And, of course, pretty much the entire basis of open market operations is to
avoid unanticipated price level shifts, which is why "price stability" (universally understood as
stable, low, positive inflation) is part of the operating mandate of central banks.
Moreover, with
falling prices--anticipated or not--floating interest rates cannot adjust correctly to compensate borrowers who seek to substitute future spending with present spending, with the predictable result that
both borrowing
and present spending grind to a halt, that conventional economic policy levers are fully powerless to reverse.
Thus, standing aside and allowing deflation to propagate is a gross dereliction of duty on the part of a monetary authority and fits any definition of immoral.
