Thursday, October 23, 2008

Inflation may be least painful way out of federal deficit

Several ways out of the deficit sound painful.

One way is to cut federal spending drastically. This would disrupt the economy for sure. Drastic cuts in medicare, veterans benefits, infrastructure, law enforcement. Actually, many will say we should drastically cut our military.

Maybe we should ax the military.

That's the meat ax approach.

Another possibility is to renege on paying the interest of the federal debt. Just don't pay the interest.

That would send banks into even more of a tailspin.

So to keep it all going, federal spending is needed.

Just add to the deficit.

Hopefully, they can just print money so things can keep going.

This eventually leads to inflation, but inflation is the least painful of the above solutions.

Double digit inflation is all that's needed. Not necessarily having to bring a wheelbarrow of coins to the market to buy a loaf of bread. That's the extreme.

Double digit isn't that bad.

I think I remember we had double digit inflation in the 1970s. We survived.

In the 1990s and the early 2000s we had double digit inflation in housing and health care. It's already been the reality in those sectors at least; until just this latest "bubble deflate."

If one is low income, housing can be well over 50% of personal budget. I'm glad I have a nice landlord so that isn't the case for me, but I hear the stories of other people. Scary.

Housing and health care are survival things. If these have been already inflating "double digit style," I don't think it will kill us if toys, restaurant meals and other products in the economy start inflating also.

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