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TIP591: Currencies and Debt w/ Lyn Alden
We Study Billionaires - The Investor’s Podcast Network
The Power of Central Banks in Overriding Deflationary Forces
Central banks hold the power to counter deflationary forces by aggressively implementing fiscal policies and targeting the middle class. They can issue helicopter money, boost inflation, bail out pension systems, and support the middle class. Holding long-term low-rate bonds in such an environment would be risky. Negative yields would be even more vulnerable. Sometimes central banks take unusual measures, as seen in 2019 and subsequent actions during the pandemic. They monetize money, boost consumption, inflation, and asset prices, effectively overriding deflationary forces. If needed, they can print money to address solvency issues and counter demographic and technology-driven disinflation. This kind of disinflation actually provides them with cover to do so because it is difficult to manifest as real-world inflation.
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