Tweet
Floyd Norris says, "don't worry, be happy with inflation." It's the easier path. So good for all those who borrow their way to wealth. Hoorah for debt monkeys.
http://www.nytimes.com/2009/08/28/bu...1&ref=business
Some countries, particularly in eastern Europe, went on enforced austerity this year because no one would lend them money. In the United States, with its dollar printing presses, we assume that could never happen. But it is conceivable that someday investors will grow cautious about lending to a country with so little self-control and demand higher interest rates to protect them from the possibility of a depreciating dollar. Or they might insist on lending in euros or Chinese renminbi, currencies the American government cannot print.
Before the United States gets serious about raising taxes, I suspect that inflation will start to seem much more attractive, even if few are willing to say so publicly. In the past, inflation has enabled the United States to reduce the burden of repaying existing debt, and China, for one, has voiced fears we will do it again. Widespread inflation could also make depreciated assets — like homes — worth more dollars than the owner now owes.
Ben Bernanke got a second term as Fed chairman this week, something he earned for his evident success in dealing with the financial crisis. (He failed to see the crisis coming, but few others who might have gotten the job could claim a more prescient record.) In this term, he may find that inflation-fighting is not the road to popularity.
His reappointment should serve as a reminder that things could be much worse. Which would you rather worry about: the specter of Great Depression II, which seemed so real only six months ago, or the possibility of excessive budget deficits in the next decade?
http://www.nytimes.com/2009/08/28/bu...1&ref=business
Some countries, particularly in eastern Europe, went on enforced austerity this year because no one would lend them money. In the United States, with its dollar printing presses, we assume that could never happen. But it is conceivable that someday investors will grow cautious about lending to a country with so little self-control and demand higher interest rates to protect them from the possibility of a depreciating dollar. Or they might insist on lending in euros or Chinese renminbi, currencies the American government cannot print.
Before the United States gets serious about raising taxes, I suspect that inflation will start to seem much more attractive, even if few are willing to say so publicly. In the past, inflation has enabled the United States to reduce the burden of repaying existing debt, and China, for one, has voiced fears we will do it again. Widespread inflation could also make depreciated assets — like homes — worth more dollars than the owner now owes.
Ben Bernanke got a second term as Fed chairman this week, something he earned for his evident success in dealing with the financial crisis. (He failed to see the crisis coming, but few others who might have gotten the job could claim a more prescient record.) In this term, he may find that inflation-fighting is not the road to popularity.
His reappointment should serve as a reminder that things could be much worse. Which would you rather worry about: the specter of Great Depression II, which seemed so real only six months ago, or the possibility of excessive budget deficits in the next decade?