Reply #23: How I understand it.

[mick063]

Cause and effect. You are initially correct, but the reaction to it is the problem.

What typically happens when monetary supply is decreased?

More money is printed as a "cure".

What happens when more money is printed?

Inflation.

We are talking about a severe over reaction to the point you made. A "quick fix" fueled by politics as opposed to fiscal responsibility. Social pressure will demand higher money supply to revitalize the economy. Even the best economists will have varying, diverse proposals for "correction". The problem will be too complex to quickly solve. "Trial and Error" methods will likely be used.

Interest rates are at an all time low. In normal times, these conditions are inherently inflationary. The skids are already "greased". I think of the relationship like this. If interest rates are zero, you are basically "giving" money away. When you "give" money away, it rapidly loses it's value.