Misery Index High

[Brittain33]

Vorlon, many people don't understand the link between mild inflation and increasing the velocity of money, especially because our national memory is of inflation linked with stagnation in the 1970s. But one way that inflation can improve economic growth, other than by providing an incentive to invest rather than sit on cash, is that it will help with our massive overhang of consumer debt and mortgage debt which right now inhibits people from spending and creating demand.

Prices are sticky, especially house prices. Inflation is a way around that.

I agree with what others say about the danger of getting the genie back in the bottle after it's out. No one likes runaway inflation. But in the 1980s, we had inflation rates of 4%, and it was "morning in America." Now 2% inflation is considered too high.

[Brittain33]

Vorlon, many people don't understand the link between mild inflation and increasing the velocity of money, especially because our national memory is of inflation linked with stagnation in the 1970s. But one way that inflation can improve economic growth, other than by providing an incentive to invest rather than sit on cash, is that it will help with our massive overhang of consumer debt and mortgage debt which right now inhibits people from spending and creating demand.

Prices are sticky, especially house prices. Inflation is a way around that.

I agree with what others say about the danger of getting the genie back in the bottle after it's out. No one likes runaway inflation. But in the 1980s, we had inflation rates of 4%, and it was "morning in America." Now 2% inflation is considered too high.

I don't think it a question of inflation being too high.  It is a question of inflation growing and the economy not growing.

That is not a response.

Right now, we have inflation not growing and the economy not growing. We are positing that increasing inflation can get the economy growing. You're saying, "but if it doesn't work, then it won't work."

[Brittain33]

I'm less worried about the rates at which people get new mortgages in the future... they can decide for themselves what they can afford. There is a systematic benefit to reducing the number of mortgage-owners today, and most people have fixed mortgages, who are underwater because it leads to more sales, more freedom of movement, and a healthier economy. The surest way to do that is to raise the general level or prices in the economy to catch up a bit with the rampant housing price inflation that preceded our current crisis, so housing prices, and consequently housing debt, can diminish by comparison.

Right now, we are nowhere near supply constraints. There are many, many people with valuable skills who are sitting on the sidelines because there is not enough work. If creating money leads to more of these people being brought into the workforce because of increased demand and velocity of money and they create products or services of value, we all become richer. I would find it hard to believe that the work they would add would not be of value.

[Brittain33]

I'm less worried about the rates at which people get new mortgages in the future... they can decide for themselves what they can afford. There is a systematic benefit to reducing the number of mortgage-owners today, and most people have fixed mortgages, who are underwater because it leads to more sales, more freedom of movement, and a healthier economy. The surest way to do that is to raise the general level or prices in the economy to catch up a bit with the rampant housing price inflation that preceded our current crisis, so housing prices, and consequently housing debt, can diminish by comparison.

Don't confuse interest rates with inflation.  They just dropped again.

I was responding to The Vorlon's post about higher interest rates in the future.

[Brittain33]

That sure puts the screws on retirees, though. And a bunch of them already got bent over by the market turmoil.

Many of them are invested in bonds which are paying absurdly low interest rates that don't support them. Social Security is indexed to inflation. I think what we have now for economic policy is overwhelmingly tilted toward seniors. Seniors benefit from economic growth.