A Trial Balloon

The column by Anthony Mirhaydari has an unusually blunt title: "Why inflation would be good for us." His message is fairly simple: inflating would be the least painful alternative to dealing with the current fiscal squeeze and its consequences. The prime beneficiary would, of course, be the U.S. government. But, Mirhaydari beleives that many ordinary Americans would benefit too:

The idea is that a quick bout of higher-than-normal inflation would lower the nation's debt in real dollars, bailing the government out of the debt threat. That means we could avoid Draconian tax increases or big spending cuts, both of which would be politically unpopular and could scuttle the economic recovery. (One example of what such cuts might bring is the "Roadmap for America's Future" proposed by Paul Ryan, R-Wis., the ranking Republican member of the House Budget Committee. It envisions phasing out Medicare in favor of private health vouchers and calls for raising the Social Security retirement age, among other changes.)

But accepting higher inflation wouldn't help just the government.

It would also benefit many Americans, who would see the value of their homes and retirement accounts increase. U.S. exports would become more competitive as the dollar weakened. The unemployment rate would fall, partly because real wages would decline, a less pleasant result.

Yes, this strategy carries dangerous risks. But we're in an extremely serious situation.

He's aware of the danger that rising interest rates would present to an ramp-up of inflation, which he believes would be a controlled one at about 4%, but he suggests that banks be forced to buy Treasury securities so as to keep Treasuries from falling all that much. Such a mandate would counteract the bond vigilantes for a time.


I only point to this column as a straw in the wind, one that certainly validates the long-term gold bull market.

[H/T: The Free Republic, in this thread.]