Almost instantaneously, as soon as governments across the globe went into unparalleled debt to bail out their financial systems beginning in 2008, economists openly were discussing the impossibility of ever paying back those sovereign loans, and that a different solution was required. The answer, so the economists said amongst themselves, was targeted inflation. In effect, so argued those economists, inflation significantly higher than recent levels, targeted at a level of at least 5 percent, would be "good."
Why would inflation, a fiscal and monetary circumstance which human beings by instinct regard as an ill omen, be seen in such positive hues by economists as renowned as Nobel Prize winner Paul Krugman? The answer is that inflation is viewed as the ideal solution for eliminating sovereign debts that can never be repaid. In effect, inflation is the methodology by which a nation-state defaults on its loan obligations stealthily. The printing presses expand money supply beyond the level generated through real economic productivity, in the process depreciating the value of the currency. The nation-state, on paper, doesn't default on its loan repayments, since the contractual obligation is repaid in monetary terms. However, inflation depreciates the value of the currency, so the outstanding loan obligation shrinks in real terms. In addition, so argue the economists, inflation, by destroying the value of money, discourages savings, leading to higher spending and improved economic growth.
It is a neat gimmick, one resorted to by indebted sovereigns throughout history. However, despite claims by economists that precisely targeted inflation has worked in the past, history tells a different story. In the great majority of examples where countries deliberately employed inflation as a fiscal and economic policy, the results were not only counterproductive; very often the social anguish created by the policymakers resulted in political consequences of dire proportions. One can look back at Weimar Germany's bout of inflation, which went out of control and morphed into rampant hyperinflation. There are many countries that experimented with inflation at levels far less than those experienced by Weimar Germany and, more recently, Zimbabwe, which still did no good and much harm economically and socially.
The basic problem with modern economic policy-making is that it is too fixated on fiscal gimmickry to resolve core problems. Whether it is quantitative easing and "Operation Twist" by the Federal Reserve or stealth sovereign bond purchases by the European Central Bank, the "experts" play fiscal games rather than address the fundamental factors underlying the global economic crisis; flawed systems and economic architectures that have transformed nations that formerly focused on production into entities of debt-financed consumption. Regrettably, instead of coming to grips with the true underlying factors responsible for the first global economic depression of the 21st century, the economists advising our policymakers look increasingly towards inflation, and the destruction of whatever financial assets are still retained by the increasingly beleaguered middle class, as the last best hope for resolving the sovereign debt crisis.
It is unfortunate that our modern-day economic gurus have not read Santayana, who warned that those who disregard the mistakes of the past are condemned to repeat them.
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The idea that monetary means can effectively substitute for sound fiscal policy is, of course, unsound.
Money illusion can work in the very short run...but it always collapses. THAT is the lesson of history.
I am about as fiscally conservative as "they" get, but, given current demographics and trends in the world there is NO other viable solution ...
The well structured low debt nations to keep their own inflation free currencies which will appreciate and those who need to become more competitive and erase debt to engage in "controlled" inflationary policies.
My guess is, however, that once a nr. of countries do it, the RACE to be competitive will drive more countries towards higher inflation goals .... it might end up as a race to a LOWER standard of living for everyone ...
Still, we can't grow out of it (economic reasons) and we can't cut our way out of it (political reasons) ...
Watch "the Money Masters"
http://www.themoneymasters.com/
http://webskeptic.wikidot.com/money-masters-transcripts-part-24
Banksters now literally own us.
http://en.wikipedia.org/wiki/File:Estimated_ownership_of_treasury_securities_by_year.gif
Phase out fractional reserve while issuing greenbacks. That creates a debt free monetary system
“The Government should create, issue, and circulate all the currency and credits needed to satisfy the spending power of the Government and the buying power of consumers. By the adoption of these principles, the taxpayers will be saved immense sums of interest. Money will cease to be master and become the servant of humanity.” Abraham Lincoln
They did not fail. They were retired.
http://en.wikipedia.org/wiki/United_States_Note#Post_Civil_War
The debt from the civil war was far less than wars financed the bankster way.
Mild inflation is thus how we pay for our republic and grow the money supply.
The biggest danger is if the middle class is destroyed. Most of the middle class wealth was in savings and bonds in 1920s Germany when the hyperinflation hit. The middle class was completely wiped out.
People have an irrational fear of the tea party, but if the middle class is wiped out, there will probably be some truly scary political movements that will make the tea party look like boy scouts.
The government, Keynesian economists like Krugman, and the FED are playing with fire. What is needed, as the article says, are structural changes to our economy so as to increase production, not financial gimmickry.
Write something that works for the business plan.
Krugman is a typcial example. NY Times not what it once was ?
So, Filger, what would you do ?