New America Foundation Urges US To Inflate Our Way Out Of Debt

The Business Insider ^ | 11 Sep 2009 | John Carney

[BGHater]

A new paper from the New America Foundation urges that US to adopt a policy of moderate inflation in order to allevieate the massive public and private debt burden. 

Authored by Chris Hayes, the Washington DC editor of the Nation, the paper argues that too much debt will have a deadening effect on the economy, as people are consigned to “debtor serfdom” and the government cannot afford to provide basic services because of the cost of making its debt payments.

“The surest way to avoid such a fate is to jettison a central, indeed the central axiom of post-1970s neoliberal global capitalism, and that is to embrace a period of moderate, sustained inflation,” Hayes argues. He provides this chart showing that our debt has grown while inflation has stayed low.

Liberal political blogger Matthew Yglesias applauds the idea. And obviously the Nation editor is a man of the left. So it’s odd that both would be urging a policy that would wind up severely restricting the ability of the government to borrow money.

Over the long term this “inflate our way out of debt” would be viewed by investors—both foreign and domestic—as a policy of covert default. Other countries that have tried to use inflation to wipe out debt have found that borrowing becomes much harder and more expensive. It would also make banks hesitant to lend, except at interest rates high enough that the yield wouldn’t be devoured by inflation.

Fortunately, not everyone in DC is jumping on board the inflate our way to debt-freedom bandwagon. Daniel Indiviglio a the Atlantic spells out a number of problems with the idea.

[UncleVanya]

TAKE ACTION NOW - NO MORE SITTING ON THE SIDELINES
The thing we have to do now, without any hesitation, is vote out this current Congress in 2010. Then take back our Nation in 2012. If we do not mobilize ourselves and others now to do this in ways far beyond where most of us have ever engaged in political matters, we will lose this country. And have ourselves to blame.
FRIENDS, WE CAN NO LONGER JUST 'PREACH TO THE CHOIR' -- WE MUST CARRY THIS MESSAGE TO ALL WE KNOW AND ACT NOW. THIS IS NOT A DRILL.

[Toddsterpatriot]

Does he imagine our debt will decrease when inflation is higher? LOL!