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Inflation is one way to solve a debt crisis. What ends up sacrificed is the reputation of the currency (dollar in this case). Our spending power as a nation w
by johnrob 18y ago
Inflation is one way to solve a debt crisis. What ends up sacrificed is the reputation of the currency (dollar in this case). Our spending power as a nation will decline when the rest of the world demands more dollars for their goods.
I have wondered lately if this is why we are keeping our car companies alive: Massive inflation could make them cheaper than foreign cars.
- cchooper 18y agoHe's proposing an expansion of the money supply, not inflation. It will only lead to inflation if the money is not withdrawn quickly enough as the economy recovers.
- johnrob 18y agoIt's all relative. Expanding the money supply has an inflationary effect, even if the absolute effect is simply to slow deflation (which is still relative inflation).
- cchooper 18y agoChanges in the money supply do not appear to be correlated with short term inflation at all, so it's not certain that short term expansion will produce any effect.
- hardik 18y agoBut short term expansion will surely not be enough to quell the crisis. Also, the point that other commentators have made on falling value of the currency stands valid. At the moment, America is facing twin problems of slowing economy and mounting debt; whose classical "cure" point to different directions.
- dominik 18y agoWait a second, isn't inflation = expansion of the money supply, i.e. monetary inflation? Price inflation comes later as a direct consequence of monetary inflation, as effects propagate through the economy. Also, how could money "be withdrawn quickly enough"? Who would withdraw it and how?
- cchooper 18y agoInflation is defined as a persistent rise in general prices. It used to mean an increase in the money supply, but that usage is archaic in most economic circles. The money would be withdrawn in the way that central banks usually withdraw money in their day-to-day operations: by selling bonds or allowing them to mature.