Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
It has often been argued that one way to reduce national debt is to allow for rapid inflation. It certainly reduces the value and in some cases can remove past deficits. Why? Well, the money used to pay down the deficit is no longer as valuable and has gone down in price. For instance a deficit of 200 million dollars in 1970 after rapid increases in inflation is really only worth 50 million in 1980. It is certainly much easier for government to pay down debt in high inflation periods then it is in low inflation periods. Is it okay for governments to use Inflation as a "get out of jail free card" in dealing with large deficits?
Clearly, there are no free-lunches and while we'll be able to afford less in taxes in future we'll be "raped" in the short term when it comes to, finding jobs, financing loans, and purchasing common items, and rapidly expanding our economic growth. Any thoughts? Do you think it is very possible government would allow this to happen now?
Side Note; I'm not a compiracy theorist and I do not think government would hurt the American economy purposely (or would they). But to get ride of a few trillion dollars what's a few years of extreme inflation going to hurt.
It has often been argued that one way to reduce national debt is to allow for rapid inflation. It certainly reduces the value and in some cases can remove past deficits. Why? Well, the money used to pay down the deficit is no longer as valuable and has gone down in price. For instance a deficit of 200 million dollars in 1970 after rapid increases in inflation is really only worth 50 million in 1980. It is certainly much easier for government to pay down debt in high inflation periods then it is in low inflation periods. Is it okay for governments to use Inflation as a "get out of jail free card" in dealing with large deficits?
Bad news. First, no one recently (aside from Clinton) has had any intention of paying down the debt. The only commitment is to service the debt, which means paying interest as scheduled and rolling over the existing securities as they mature. Second, the Treasury securities that evidence the debt are interest-bearing, and interest rates reflect inflation risks. Rapid inflation would mean significantly higher interest rates on all new and roll-over issues which the Treasury would then be obligated to pay out at for at least a decade. This plan for big savings will end up costing a lot of money.
Federal Reserve Chairman Ben Bernanke did his dissertation on stopping deflation like what happened during the great Depression. The summary I have read makes me think that the way he intends to deal with the current crisis is by throwing more money at the system that creates even more inflation.
Actually, Bernanke's doctoral dissertation was on the role of uncertainty in the process of investment decision-making and hence in determining the dynamics of the business cycle...
Bad news. First, no one recently (aside from Clinton) has had any intention of paying down the debt. The only commitment is to service the debt, which means paying interest as scheduled and rolling over the existing securities as they mature. Second, the Treasury securities that evidence the debt are interest-bearing, and interest rates reflect inflation risks. Rapid inflation would mean significantly higher interest rates on all new and roll-over issues which the Treasury would then be obligated to pay out at for at least a decade. This plan for big savings will end up costing a lot of money.
That's right. There is no free lunch.
Not sure what your point in the first paragraph is, but clearly you understand that inflation reduces the actual value of money? I mean that is pretty basic, so i'm not sure i get the gist of the first paragraphs argument. If government debt was issued in the1940's, 1950's, and 1960's at considerably lower interest to fund growth in the 1970's at extremely higher interest rates due to inflation wouldn't the payments on debt be reduced from the treasuries that would have been qouted in the previous generations? Again, not really sure what you're attempting to convey in the first paragraph please clarify. (reading your second point is correct, but again what does that have to do with debt that was issued in 1940's,1950's, and the 1960's do you see my point?)
Anyway in terms of the "Clinton" reference he could have reduced debt without raising taxes. Guess what all the had to do was stop spending money and reduce the overall size of government. He did not do either. He simply reduced the size of some of governments expenditures and hiked taxes. However, it did get us to a balanced budget, but it did not reduce government. (Any this is neither here nor then in reference to my OP).
Debt Issued in 2000's will be extremely less than debt issued in 2030. The time value of money says that a deficit in 2000 if inflations rises at a very rapid rate will not have the same value and will be worth considerably less in 2030 will it not?
Federal Reserve Chairman Ben Bernanke did his dissertation on stopping deflation like what happened during the great Depression. The summary I have read makes me think that the way he intends to deal with the current crisis is by throwing more money at the system that creates even more inflation.
Actually, his process is to set inflation targets and then tweak the system to try and meet the targets. One of the things he did differently than Greenspan was wait longer to cut interest rates, because he is more inclined to try and not create interest rate speculation bubbles. He slashed the rates after it was clear housing was going down the drain AND that stricter lending practices would be in place to preclude further reckless lending.
Actually, Bernanke's doctoral dissertation was on the role of uncertainty in the process of investment decision-making and hence in determining the dynamics of the business cycle...
Actually, his process is to set inflation targets and then tweak the system to try and meet the targets. One of the things he did differently than Greenspan was wait longer to cut interest rates, because he is more inclined to try and not create interest rate speculation bubbles. He slashed the rates after it was clear housing was going down the drain AND that stricter lending practices would be in place to preclude further reckless lending.
Side topic lol NewtoCa, clearly you have had your fair share of economics, so what do you think about Bernanke's wait and see attitude?
I was actually very disappointed with the late reaction and the 50 basis cut in December. Like many people I thought he should have done at least 75 and i would have been happy with a whole point.
Thus far i'm not a big fan of his wait and see approach, but who knows i guess we'll have to see how it plays out.
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
