There is a school of thought that higher inflation is exactly what the economy needs.
The Wall Street Journal
last Sunday
ran a story, “
What This Country Needs
Is a Good 5% CPI
”…noting that the
economy’s primary challenge is high debt
levels of individuals, corporations, and
government entities.
The story suggested that higher
inflation would
make it easier
for all debtors to
repay high debt
levels with less
valuable dollars.
This approach,
featuring much
much higher
levels of inflation,
has been used by
various nations
all too frequently
in the past, many
in South and
Central America,
to repay fixed debts with currencies worth
much less.
The story also suggested that it was
higher inflation that helped end the Great
Depression, along with global involvement
in WWII. In addition, the story discussed
Japan’s long struggle with deflation, and
the challenges of escaping a deflationary
environment.
One could argue that temporarily
higher inflation could help stabilize
U.S. housing prices. At the same time,
however, keeping inflation at bay once it
has become more pervasive is no easy task.
