The Idiotic Economic Theory That’s Causing Governments to Blow Up Their Economies

Inflation is a form of taxation which put the burden of fraudulent debt on the victims instead of the perpetrators.   Banks are counterfeiting operations by nature.  We need to nationalize the monetary system and force the banks to pay interest on the  money they’ve created out of thin air, since they are in effect loans from the government.  Doing so would force banks to act as middlemen between savers and borrowers, which is what most people thought they were already doing.  Except the government is already controlled by the banks.  Sigh.

No, We CAN’T Inflate Our Way Out of a Debt Trap

Top mainstream economists have pushed the theory that we can inflate our way out of a debt crisis.

Ben Bernanke and Paul Krugman said in 2009 that we should force inflation on the economy. University of Oregon economics professor Tim Duy said the U.S. will try to inflate its way out of debt.

Warren Buffet argued:

A country that continuously expands its debt as a percentage of GDP and raises much of the money abroad to finance that, at some point, it’s going to inflate its way out of the burden of that debt.

A top advisor to the French President said that the United States was “flooding the world with liquidity” to try to inflate away its debt.

This isn’t old news … it’s ongoing policy.  Just last year, Paul Krugman praised Japanese leader Abe for trying to inflate away Japan’s debt:

Enter Mr. Abe, who has been pressuring the Bank of Japan into seeking higher inflation — in effect, helping to inflate away part of the government’s debt — and has also just announced a large new program of fiscal stimulus. How have the market gods responded?

The answer is, it’s all good. Market measures of expected inflation, which were negative not long ago — the market was expecting deflation to continue — have now moved well into positive territory. But government borrowing costs have hardly changed at all; given the prospect of moderate inflation, this means that Japan’s fiscal outlook has actually improved sharply. True, the foreign-exchange value of the yen has fallen considerably — but that’s actually very good news, and Japanese exporters are cheering.

In short, Mr. Abe has thumbed his nose at orthodoxy, with excellent results.

Sadly, the results aren’t so excellent for Japan. And quantitative easing – the mechanism with which central banks have tried to create inflation – could be backfiring.

Indeed, the whole idea that we can inflate our way out of debt trap is fatally flawed …

UBS economist Paul Donovan shows that governments can’t inflate their way out of debt traps:

The problem with the idea of governments inflating their way out of a debt burden is that it does not work. Absent episodes of hyper-inflation, it is a strategy that has never worked.

Megan McArdle points out:

It is a commonplace on the right that we’re going to have enormous inflation, not because Ben Bernanke will make an error in the timing of withdrawing liquidity, but because the government is going to try to print its way out of all this debt.

Joe Weisenthal notes that it doesn’t quite work this way:

As this chart shows, instances of declining debt-to-GDP rarely coincide with periods of inflation. If it did If it did, we’d see more dots in the lower right-hand quadrant.

The bad news for central bankers is that creating currency isn’t like, say, diluting shareholders in a company. You’re always rolling your debt, and the market’s response to an inflationary strategy is (not surprisingly) higher interest rates. It’s a treadmill, and it’s extremely hard to get ahead.

Inflating your way out of debt works if you’re planning to run a pretty sizeable budget surplus–big enough that you won’t have to roll your debt over. Otherwise, your debt starts to march upward even faster, as old notes come due, and you have to roll them at ruinous interest rates. Hyperinflation might wipe out that debt, but also your tax base. ….

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