Monday, March 30, 2009

This is how the party ends

Inflation Is Tempting for Indebted Nations

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.

Posted by little professor @ 01:26 AM (1347 views)
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13 thoughts on “This is how the party ends

  • There is an excellent comment, following this article. Be warned, it sounds just like the UK!

    ——————-
    … “8 to 10% inflation? no problem. The US Bureau of Lies & Shenanigans will fudge the numbers and voila – CPI is 3.95%. Then just for laughs, eliminate food, shelter, energy and push the “core” index. Then the brain trusts will tell us to buy TIPS because we’ll be protected from inflation when really we’ll just be tracking some concoction called CPI. We should never underestimate the gov’t’s ability to lie and the public’s gullibility” …

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  • rotten tomato says:

    So the WSJ is advocating the reduction of savers and the avverage citizen to penury to bail out the gamblers and fraudsters. Not surprising from a rag printed for compulsive gamblers. Perhaps the US people need to rediscover some of that rebellious colonist spirit and come out onto the streets with pitchforks? I have a feeling that only outright mob violence will be enough to get the politicians to think more ethically. Although that always cuts both ways.

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  • rotten tomato says:

    Sorry I meant to say “average” with one “v”

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  • @rotten tomato

    Of course, you are right that Wall Street is looking to escape the blame for its excesses but consider:
    Who signed all those dodgy mortgages?
    Who maxed out all those credit cards?
    Who stopped saving?
    Who has been living beyond their means for years?

    Not everybody participated in the debt binge but an awful lot of US and UK debtors should not forget to look in the mirror when apportioning blame.

    If debtors were a small minority in this country, our government wouldn’t be pursuing such an appalling monetary policy.

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  • Inflation as policy is a default.

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  • There is one thing that will prevent the US using inflation to reduce its debts – China. They aren’t going to stand by and see their hard earned dollars reduced even more in value. They have America over a barrel now – without the Chinese buying US Treasuries there would be no way the US could issue so much debt. So when they say ‘Jump’, Obama will say ‘How high?’

    The question is whether someone will provide similar discipline to the UK govt.

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  • Inflation has become an economic necessity; as I have often said before.

    If control could be maintained, an inflation rate of 5% would burn away debt, especially that resulting in negative equity, without pushing interest rates too high.

    However, history shows that once you let the inflation genie out of the bottle, it is very hard to get it back in again.

    I believe that future historians will record the decision to indulge in QE as the great critical mistake – the drug that provided a quick fix, but one that the patient immediately became dependant on.

    My money is on inflation rocketing, quite possibly to levels never seen in the last century; and that as a result, interest rates will become impossibly high..

    ..hold tight!

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  • Can someone help me here. I can’t see how inflation can rip if wages are low or decreasing along with outgoings and interest rates on the rise. Surely the economy and wages will have to soar to make this viable, which would mean a miracle turnaround in the economy

    All I can see in this senerio before an election is a whole lot of pain and pressure to hike interest rates. I don’t get it!

    Can someone explain how inflation can soar without it causing a blood bath? THIS IS FROM ANOTHER THREAD……………………..

    7. uncle tom, Agreed this is the only senario that makes sense BUT soooooooooo destructive. Are we really heading for a blood bath?

    HPC has not even started and some people are considering a house purchase as a hedge against inflation????????? Go figure!

    FEEL THE PAIN.

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  • @8 Crunchy
    You are right, the inflation problem may not arise over night but when you are cornered and have nothing to loose then desperation sets in and sometimes destruction begins before something else replaces the system Perhaps the gold standard. I understand (not personal experience) that Zimbabwe citizens are now using gold mined from their local rivers to purchase essentials.
    Time will tell. We are living in worrying times.

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  • 9. house

    We are in trouble, all I see on the streets is litter. Looks like I will have to raid the kids Monopoly money.

    Then again a scanner, printer and a straight face may do the trick. I will ask Gordon!

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  • 10. Crunchy
    Yes we are in trouble. Do you think the country’s material expectations has to reduce which means higher productivity with lowers rewards in all industries. Do you think this could happen when people realise that material goods, expensive holidays or lany “want now goods” does not provide happiness. Once this is realised and greed is abolished then we could have a satisfied society. This in my opinion is long way off. Don’t you think.

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  • Years ago you would see people on the streets repairing there own cars, talking to each other, doing some gardening and still have time for the kids that wanted to be taken out. The clapped out garden fence could wait.

    We have become domesticated poodles unable to anything for ourselves but click a zapper if it can be found under the maze of playstation wiring. Yes, just tell me when it’s time to stop protecting my assets and I will be right behind you. Now where did I park my Capri?

    Roll on the revolution brother!

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  • @12
    Yes, those were the day’s. Now it is all about going to “coffee bars” and take out’s.

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