That's only a useful idea if you could somehow refinance federal debt, which is impossible. People are not stupid. The consumerist just posted an article a few days ago about how mortgage rates are the lowest they've been in god knows how long but the housing market keeps slumping and people refuse to buy. The uncertainty, while different for an individual vs a government, is the impediment in both cases. It is not inconceivable for there to be a huge burst of inflation in the next 5 years with the euro crisis, which could implode at any point. Any of a half dozen potential financial disasters could seriously jeopardize the trust in currency, which would give us rocket propelled inflation the likes of which we haven't seen before. There's a reason gold prices continue to go up.
If you have massive inflation, then it's even more profitable to have borrowed. That's why everyone's afraid there w2il be inflation, so the government will be able to pay back cheap dollars, having borrowed expensive ones.
You inflate your current debt away, but you also completely lose the chance to borrow more. Which could be necessary in a desperate time, which is why it might be better to keep your powder dry. The recent bank stress test just came out and showed that european banks depend on wholesale funding for 45% of their capital right now. Not to mention their liquidity is less than 3%. If things go to pot, there won't be any money to borrow, forget about the benefits from inflating the debt away.
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timeasmymeasure
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Date: 2011-08-20 07:48 am (UTC)no subject
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