Uncaged Inflation Is a Beast That’s Easy to Free, Hard to Control: Bloomberg
Uncaged Inflation Is a Beast That’s Easy to Free, Hard to Control: View
Illustration by Bloomberg View
Inflation? No, thank you.
We just endured and survived a major political crisis over the possibility that the U.S. government might default on its debts. Most people -- other than a few high-stakes poker players on the right wing of the Republican Party -- agreed that this would be a terrible thing. But now, a growing number of voices, mainly on the left wing of the Democratic Party but also in the Federal Reserve, are calling for what is in effect default in slow motion. It goes by the name of inflation.
Inflation decreases the value of debts, like the $14 trillion owed by the federal government to lenders such as the government of China (and a lot of ordinary American savers, too), and it increases the value of assets, like houses. Thus it helps all debtors, from the federal government to individual homeowners who can’t pay their mortgages. Inflation has been running at an average of 2.4 percent over the past decade. After a couple of years of, say, 6 percent inflation, that $14 trillion would be worth closer to $12 trillion in current dollars. A $400,000 mortgage would be worth about $350,000.
The U.S. government is going to be trying a tricky maneuver over the next couple of years. First, it wants to give the still-sickly economy another kick in the pants. That requires a larger federal deficit -- not as an unfortunate side effect, but because that’s how a stimulus works. Then, the government must perform a U-turn and concentrate on seriously reducing the deficit for our long-term economic health. A bit of inflation could help grease the wheels, by eroding the value of debt and debt-service payments.
full Bloomberg article
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posted by Walk a Kb or Two in my cassins | 7:13 am
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