No, We CAN’T Inflate Our Way Out of a Debt Trap
Top mainstream economists have pushed the theory that we can inflate our way out of a debt crisis.
Ben Bernanke and Paul Krugman said in 2009 that we should force inflation on the economy. University of Oregon economics professor Tim Duy said the U.S. will ultimately try to inflate its way out of debt.
Warren Buffet argued:
A country that continuously expands its debt as a percentage of GDP and raises much of the money abroad to finance that, at some point, it’s going to inflate its way out of the burden of that debt.
A top advisor to the French President said that the United States was “flooding the world with liquidity” to try to inflate away its debt.
This isn’t old news … it’s an ongoing policy. Just last year, Paul Krugman praised Japanese leader Abe for inflating away Japan’s debt:
Enter Mr. Abe, who has been pressuring the Bank of Japan into seeking higher inflation – in effect, helping to inflate away part of the government’s debt – and has also just announced a large new program of fiscal stimulus. How have the market gods responded?
The answer is, it’s all good. Market measures of expected inflation, which were negative not long ago – the market was expecting deflation to continue – have now moved well into positive territory. But government borrowing costs have hardly changed at all; given the prospect of moderate inflation, this means that Japan’s fiscal outlook has actually improved sharply. True, the foreign-exchange value of the yen has fallen considerably – but that’s actually very good news, and Japanese exporters are cheering.
In short, Mr. Abe has thumbed his nose at orthodoxy, with excellent results.