Is inflation the answer?

Talk about counter-intuitive, but at the same time, I see the point.

A prominent hedge fund manager says the only way to fight this depression is to stoke inflation.

That's right. Stoke inflation.

As inflation rises, our debts become cheaper and smaller.

I think he's relying on the thought that it will be cheaper for foreign investors. I'm not sure I buy into the inflation cure theory, but alas...

here's the article for those smarter than myself.

reply to post by behindthescenes


The answer is simple.


With hundreds of thousands of people loosing their jobs every month, with trade across the globe slowing down, inflation would compound the problem.

Imagine you are out of work, you have 10k saved in your bank account, you can't find new work because no one is hiring, so you start tapping into your savings account. At the same time inflation is beginning to become apparent. A loaf of bread now costs you seven dollars, a gallon of gas costs 3.50. No big deal, you can make it. Your account is down to 8k now. The rate of inflation is greater than you interest rate on your savings account. Your money is loosing value. You find a job making 20 bucks an hour, it's all you could get. 7.5k in the bank, and a monthly income. Now a loaf of bread costs 9 dollars, gas is up to five bucks a gallon. Milk, eggs, all the staples have risen across the board.

The monthly income is not enough, company cannot afford raises. You tap into savings to supplement your income. Bread now costs 12 dollars a loaf, gas is 6.50 a gallon. Your debts are still what they always were. You still owe 10k in student loans, have 3k on a credit card, and your home loan is still over 200k, which is more than the house is worth. Your wage has not increased because the company's costs have increased along with yours, at the same inflationary rate. You try to pay the minimum on your credit card, but because your electric bill is so high, you are having to make cuts. The price of food continues upwards. Bread is now 13.50, gas is 7.50.

You start to get angry, because your savings account now only has 3k in it. At the rate things are going, you will have a job paying 20 dollars an hour, and you will be homeless. By the time bread reaches 14 dollars a loaf, cities begin to see food riots. The government is loosing it's control. So the government responds the only way it knows how. It uses force to quell the riots, makes arrests, erects homeless camps, and creates soup lines. It blames it's own inflationary policies on "greedy companies charging too much for food". The government tells the American people that "companies taking advantage of the situation will be dealt with". True to it's word, the government institutes price controls in an attempt to make food affordable again. Bread now costs 5 dollars a loaf. You can afford to eat again. with 1.5k in savings, and a job, you are going to make it. The next month you go to the store, and there is no bread. The price controls had reduced the companies profit and forced it to operate at a loss, this meant the company fired most of it's workforce just to break even, with less workers, there was less production, less production meant less food. The price controls had, in effect, created more unemployment, and massive food shortages. Now food is affordable, but you can't buy it anywhere.

You get a phone call from your boss, he tells you not to come today, he can't afford to pay you. Two weeks later you loose you job, because your company went under.

You have 1.5k in the bank, a home loan for 200k, 10k in student loans, you are out of food, and the grocery stores is out of food. There are riots in the streets, there are riot police everywhere. A gallon of gas costs 15 dollars, and a loaf of bread only costs 5, but there isn't a loaf of bread anywhere to be found. Your city ran out of money, public transit stopped, and the federal government isn't far behind.

How did that scenario happen? Because some idiot thought we should inflate our way out of this. Although, that is probably what they will do anyway, in which case, I'd say the scenario outlined above is very likely.

[edit on 2-3-2009 by aravoth]

reply to post by aravoth


This is the best possible way to put this. I couldn't have said it better myself...The government is going to destroy the Nation. It would be prudent to stop them before they do, but we all know that won't happen.

Obama is a Bush and Jimmy Carter love child on steroids.

recommended by the same people who brought us the meltdown, the bailout and the lies that go with it.

heck, these people even invented fractional reserve banking for crying out loud. inflation, deflation, downturn, no matter what they tell first take the wealth of those who buy into the racket and use them as a front and once they are suffiencently dependent, the next group will be thos who did not.

if need be they can confiscate, kill, sue and if all fails, send a mob of violent looters preceeded by agressive gun grabbing of course.

Originally posted by Long Lance
recommended by the same people who brought us the meltdown, the bailout and the lies that go with it.

heck, these people even invented fractional reserve banking for crying out loud. inflation, deflation, downturn, no matter what they tell first take the wealth of those who buy into the racket and use them as a front and once they are suffiencently dependent, the next group will be thos who did not.

if need be they can confiscate, kill, sue and if all fails, send a mob of violent looters preceeded by agressive gun grabbing of course.

Exactly, economic problems lead to a host of totalitarian issues.