Seven Myths. Nay: Seven Follies (II)

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and that Libor, Euribor and all the rest will not sit still out there, should inflation reappear

ONLY IF governments will source the funds necessary for reflating the economy by issuing debt instruments. Should they decide that their interests are aligned to the debtors' (a category to which in the West they do belong, in part by owing trillions to people they don't even claim to represent, such as Asian sovereign and private investors), and starts printing money, then the real interest rates might well be driven into negative territory for an extended period of time. It happened already, when Nixon on August 15, 1971 shut the gold window "to defend the dollar agaist the speculators" (ha ha!) and those sneaky unpatriotic types who weren't buying American products -- also stung with an extra 10% tariff for good measure.

Of course, the foreign governments did not stay idle and started monetizing their debt as well, and we all got the wonderful seventies.

So, why couldn't it happen now?