Given the massive deleveraging of public- and private-sector debt that lies ahead, and my continuing cynicism about the US political and legal system’s capacity to facilitate workouts, two or three years of slightly elevated inflation strikes me as the best of many very bad options, and far preferable to deflation. While the Fed is still reluctant to compromise its long-term independence, I suspect that before this is over it will use most, if not all, of the tools outlined by Bernanke.
Sure, inflate some of that debt away. Unfortunately, the other half of deleveraging by the debtor is risk reduction by the lender. We cannot help the one without alerting the other. That leaves growth, and Congressional spending is still coming in with low multipliers.
If Ken really wants inflation then Ken needs less goods flowing through the same distribution network, or more distribution for the same goods.
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