There are some interesting theories about how a high inflation rate could cure some of our economic problems. The thinking is that with high inflation you pay back debt with lowered valued dollars. Some also think that even a mild amount of inflation can be good for us and that only hyper inflation would be problematic. But are these theories in the best interest of the country or just idle thinking by some?

In one recent article that I read it states that:

Thirty years ago, we peered into this abyss and pulled back just in time. As inflation neared its peak of more than 13 percent, Jimmy Carter appointed Paul Volcker as chairman of the Federal Reserve Board. Using his control over the money supply, Volcker purposely plunged us into a deep recession, which is the only certain remedy. Carter got blamed for both the inflation and the recession that cured it.

The article goes on to state:

There is a way out. It’s called inflation. In 1979, for example, the government ran a deficit of more than $40 billion—about $118 billion in today’s money. The national debt stood at about $830 billion at year’s end. But because of 13.3 percent inflation, that $830 billion was worth what only $732 billion would have been worth at the beginning of the year. In effect, the government ran up $40 billion in new debts but inflated away almost $100 billion and ended up with a national debt smaller in real terms than what it started with. Ten percent inflation for five years (if that were possible) would erode the value of our projected debt nicely—but along with it, the value of non-indexed pensions, people’s savings, and so on.

Though some are predicting we are heading for a day when inflation will once again take off, the majority of economists predict this is not the case. But as we all know, not many people or economists saw the real estate, mortgage, nor  financial institution bubbles getting set to burst.

Predictions are easy to make. Being correct in your predictions is a lot harder.

Comments welcome.


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