> Deflation will certainly make fewer people take out loans, but not necessarily because they are living high on the hog without them.
Deflation is caused by the economy growing faster than the money supply. Increasing the supply of money counteracts this. Both banks and the government are allowed to do this. Banks create money when they make loans; suddenly you have more money in your account but there is the same amount of cash in the bank's vault.
Creating too much causes hyperinflation, so more of one requires less of the other. If the banks lent less money the government could create more.
Deflation is caused by the economy growing faster than the money supply. Increasing the supply of money counteracts this. Both banks and the government are allowed to do this. Banks create money when they make loans; suddenly you have more money in your account but there is the same amount of cash in the bank's vault.
Creating too much causes hyperinflation, so more of one requires less of the other. If the banks lent less money the government could create more.