Bailouts of insolvent banks don’t lead to hyperinflation

Let’s say there is a big hole in the solvency of a banking system. Left unaddressed, that is radically deflationary. Demand (and other) deposits will disappear, crushing aggregate demand. Cascading financial failures will occur elsewhere, again with negative demand effects. If a government “prints money,” or more likely creates new electronic bookkeeping entries, that offsets…

This story appeared on, 2023-03-18.
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