Monday, March 30, 2009
This is how the party ends
Barack Obama and Gordon Brown seek to lead the world into battle against the financial crisis, putting up trillions of dollars to revive their economies and bail out banks, posing a troubling question. As the countries' debt burdens mount to levels not seen in decades, they'll face a growing temptation to allow inflation to accelerate more than they typically would -- a move that would slash the value of their debts, as the prices of everything else rose. That could cause a lot of pain for all kinds of investors, from UK and US pensioners to large holders of US treasury debt such as China. "It would be epic, it would be terrible, but it's probably easier than outright defaulting," says Ken Rogoff, former head of the IMF.