It’s not “uncertainty.”
It’s debt.
Debt is deflationary. Japan has showed us that fact every year since 1989.
Debt is also addictive. The addicts swear that it will do what it can’t: cause inflation. Addicts lie.
Governments must deleverage away from debt to break the deflationary death sprial...and *THAT* would mean harsh short-term pain before the Recovery began.
Explain to me the mechanism on how debt is deflationary. I am genuinely curious since I have always read the opposite where deficit spending was inflationary. In this country in 1945 our Debt was 120% of GDP, worse than our current 60 - 70% of GDP and we had inflation that peaked at 14% (avg) by 1947 and took a few more years to come back down to normal.
Japan issued tons of debt but if you look at their banking sector from their lost decade to present, they pretty much sat on that debt. There was no place for it to go. You can’t say they had deflation (mostly low inflation), high debt, therefore debt causes deflation. You have to explain how they are connected, if at all.
I do agree however that we are doing exactly what the Japenese did and will probably have a lost decade just like them. Their policies both monetary and fiscal were half assed and they just sat around hoping for the best. The uncertainty created by their indecisiveness may have triggered deflation but as far as deficit spending causing it, I’d have to hear a specific mechanism and an historical corollary to the sentiment before I understand it.