Friday, February 27, 2009

if inflation is not the plan, what is?

Michael Kinsley, the (liberal) columnist for the (liberal) Washington Post, has been grappling with the paradox of spending our way out of a problem that was caused in large part by excessive spending: 'But even if the stimulus is a magnificent success, the money still has to be paid back. The plan of record apparently is that we keep borrowing, spending and stimulating, faster and faster, until suddenly, on some signal from heaven or Timothy Geithner, we all stop spending and start saving in recordbreaking amounts. Oh sure, that will work.

'There is another way. If it's not the actual, secret plan, it will be an overwhelming temptation: Don't pay the money back.... Just three or four years of currency erosion at, say, 10 percent a year would slice the real value of our debt -- public and private, U.S. bonds and jumbo mortgages -- in half.

'Anyone who regards the prospect of double-digit inflation with insouciance is either too young to have lived through it the last time (the late 1970s) or too old to remember. Among other problems, inflation works only as a surprise or betrayal. It can never be part of any public, official plan. Plan for 10 percent inflation, and you'll get 20. Plan for 20 and you'll need a wheelbarrow to pay for your morning Starbucks. But if that's not the plan, what is?'

Unremarked by Mr Kinsley, but not I suspect by Mr Obama's advisers, is the fact that 10 percent inflation will likewise soon halve the value of our annual incomes, so that the $249,999 breakpoint that shelters us '95 percent of working families' from paying 'a single dime' of new taxes will become today's $124,999.50, and a few years beyond that $62,499.75. (Remember the Alternative Minimum Tax that would soak the 400 richest Americans by installing a parallel tax system for those earning more than $40,000 a year?) Blue skies! -- Dan Ford


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