Sunday, 19 April 2009

Can we inflate ourselves out of the crisis in the public finances?

Clusterstock has an article in which the case is made for rampant inflation as the way forward for the US government to solve the pending crisis in its public finances.
While it may be an amusing idea for an article it clearly won't work, notwithstanding any moral issues about a policy deliberately designed to debase the currency.

My comment to the posting was as follows

Only problem with inflation as the path to feeling better about all this (not passing it on to the kids) is that it is not a solution.

With the kind of inflation required to do that job the coupons that would then have to be attached to all those Treasury bonds that the government is going to have to issue would go far higher than in the current long term budgets.

The higher the debt service costs the longer it would take to pay it all back, which is something that is looking increasingly unlikely.

Who knows maybe we've probably passed the tipping point already.

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