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<< Does a central bank like the Fed have it within its power to induce inflation, or at least counter deflation, under any circumstances whatsoever? >>


I don't think that low rates will always stop deflation either, any more than high rates will cause it. You only have to look at Japan's recent troubles to get a good example of that.

I think the chances of deflation here are quite high if the public ever starts thinking that bad times are around the corner. In some ways, it's already here, and signs of it are all around.

As to a resurgence of high inflation, I think that they would have to actually give it away (drop it from helicopters or send checks in the mail like the Federal Govt. has been doing lately). Low rates are no good unless there is loan demand out there, and loan demand goes away during deflation, except for the need to fund debt service.

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