New America Foundation Urges US To Inflate Our Way Out Of Debt

The Business Insider ^ | 11 Sep 2009 | John Carney

[BGHater]

A new paper from the New America Foundation urges that US to adopt a policy of moderate inflation in order to allevieate the massive public and private debt burden. 

Authored by Chris Hayes, the Washington DC editor of the Nation, the paper argues that too much debt will have a deadening effect on the economy, as people are consigned to “debtor serfdom” and the government cannot afford to provide basic services because of the cost of making its debt payments.

“The surest way to avoid such a fate is to jettison a central, indeed the central axiom of post-1970s neoliberal global capitalism, and that is to embrace a period of moderate, sustained inflation,” Hayes argues. He provides this chart showing that our debt has grown while inflation has stayed low.

Liberal political blogger Matthew Yglesias applauds the idea. And obviously the Nation editor is a man of the left. So it’s odd that both would be urging a policy that would wind up severely restricting the ability of the government to borrow money.

Over the long term this “inflate our way out of debt” would be viewed by investors—both foreign and domestic—as a policy of covert default. Other countries that have tried to use inflation to wipe out debt have found that borrowing becomes much harder and more expensive. It would also make banks hesitant to lend, except at interest rates high enough that the yield wouldn’t be devoured by inflation.

Fortunately, not everyone in DC is jumping on board the inflate our way to debt-freedom bandwagon. Daniel Indiviglio a the Atlantic spells out a number of problems with the idea.

[BGHater]

Board of Directors

[4rcane]

in other words they want to depreciate the USD, encourage going into debt and not savings. Good for Wall Street, bad for Main street

Buy gold/silver and protect yourself from these idiot economists!

[Sprite518]

Stupid it never works.... It has been tried and it fails every time...

[ecomcon]

The only problem that matters is that there will never, EVER be cuts in spending. They will borrow even WITH high inflation until the country is bankrupt, unable to defend itself, and made war upon.

[Ghost of Philip Marlowe]

You are absolutely correct.

And they are not stupid.

They know exactly what happens when they do this.

One of the long-term, back-door goals is to drive down the cost/value of stock to purchase greater shares of the corporations they want to control at rock-bottom prices so that they are more valuable when they deflate the value of the dollar.

This time around it’s different, though.

1. We don’t have the manufacturing base to “produce” our way to a more valuable dollar.
2. We have destroyed the faith of our credit sources so that we can’t “borrow” our way to a healthier economic period (trying to leapfrog over this recession).

This time, when the dollar goes down, it’s down for the count. Next stop: global currency.

[Kakaze]

oh just print money, what the heck.

[Gaffer]

I've wondered what would happen to existing commercial/bank loans, etc. when the economic she-ite hits the fan....dollar ain't worth spit...loan is in fixed dollars....lendors get the short end (that is IF they can't change terms like credit card issuers can)....

Trouble with this is you have to have a job, and your compensation has to rise with the hyperinflation - which is certainly going to lag a bunch....

[nmh]

“The only problem that matters is that there will never, EVER be cuts in spending. They will borrow even WITH high inflation until the country is bankrupt, unable to defend itself, and made war upon.”

Yup!

We are rushing to utter disaster.

[SES1066]

You shall not press down upon the brow of labor this crown of thorns, you shall not crucify mankind upon a cross of gold.

Sound familiar? William Jennings Bryan at the Democrat National Convention 1896 in CHICAGO of all places. The urge to inflate away debt is probably as old as money and both this concept and this old speech are exemplars of it.

It is a superficially attractive concept and attracts demagogues by the dozens. I remember the stagflation of the 1970s and inflation rates of 12% when standard house mortgages went for 12-14% and people bemoaned the good old 8% before inflation. Given my choice, I regard inflation with complete enmity although I know economists say that we need low single digit inflation to keep the system growing!

[nmh]

Zimbabwe here we come!

[Petronski]

He provides this chart showing that our debt has grown while inflation has stayed low.

The man's crack use has grown while his heroin use has stayed flat....the solution is obvious: use more heroin too!

[cranked]

Why don’t they just plant and grow a state-sized groove of money trees? =.=

[DrC]

“Zimbabwe here we come!”

Misery Index, here we come!
http://www.miseryindex.us/customindexbyyear.asp

Obama appears destined to beat Jimmy Carter’s all-time record of 20.76. History will never forget BHO’s presidency, but it won’t be for the reasons he hopes.

[C19fan]

Isn’t it convenient that the author to make his argument breaks the post WWII era at 1980 artificially boosting the “average” inflation rate incorporating the inflationary late 60s and especially 70s but gets growth up by including the post-war boom. As his charts clearly show the US had spectecular growth from the end of WW II to the mid-1960s with inflaton running under 2%.

[truthguy]

This is theft, plain and simple. For those who have done the right thing and saved and invested, this is an outrage. The government is stealing your money by devaluing it. They know what they are doing and they have no conscience.

Like most I'm familiar with The Nation magazine and I'm not surprised someone affiliated with this wretched publication would come up with a terrible idea like this.

[jtal]

Sure, let’s trade “debtor serfdom” for “inflation serfdom.”

And it’s interesting that the left never sees government dependence as serfdom.

Those of us with reasonable living habits are getting quite weary of having our responsible behavior punished by the government.

[FromLori]

[parsifal]

Actually, one of the smartest ideas I have heard in ages. I have been thinking for a couple of decades that our fears of inflation are over-rated. This would have to be done very carefully.

parsy, who thinks in strange ways.

[Melchior]

If you march to the drum of the Marxist-trending Nation and its writers, you have become the offspring of those who marched for the same cause and brought down the Weimar Republic (and, ironically, Jimmy Carter).

[nmh]

Obama is doint his on purpsoe.

No one, I repeat, no one can not know the consewunces of these actions in a position like that. This is INTENTIONAL. He is destroying the U.S. on purpose.