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Thread: transplanted from Political Poo - inflation in our future ?

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    Banned Melonie's Avatar
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    Default transplanted from Political Poo - inflation in our future ?

    Melonie, are you advocating hyperinflation? That will also increase the interest rate we have to pay for the funds and like a bungee cord, those interest rates will throw us into exponitial decay on the deficit. The only way the current deficit works is because of low interest rates.
    No, I'm not advocating hyper-inflation, but I am saying that it's highly likely that "moderate" inflation will occur. I should clarify and say 'continue' to occur, because as everybody knows gasoline prices, health care costs, college tuition, real estate prices etc. have been increasing 'moderately' for months now. In my mind it boils down to inflation benefitting those heavily in debt (who can make their future interest and principal payments on existing debts with cheaper dollars), where no inflation or deflation benefits the rich who have excess money to loan or invest. Whether this applies to American consumers versus American retirees/rich or whether it applies to the US national debt owed to foreigners versus the Chinese/European central banks as bondholders is only a question of magnitude.

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    Sitri
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    Default Re: transplanted from Political Poo - inflation in our future ?

    Sorry it took so long, but I didn't realize the thread was "moved to a new quilt".

    Yes, they will be cheaper dollars, but it depends on the increase in compensation versus the increase in inflation. In the early 80's, interest rates for home loans were like 17%. Inflation was 13% At the same time wage increases were only like 10-12%.

    It all depends on the increase in wages versus the inflation rate to really say if the dollars are cheaper.

    And in the stripping industry even though inflation from 1981 to 2004 has gone up 143%. We are still tipping a $1 instead of $2.50 it would take if it were inflation adjusted.

    But my real point is that the deficit would sky rocket with an increase in interest rates because most of it is funded by short term money.

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    Banned Melonie's Avatar
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    Default Re: transplanted from Political Poo - inflation in our future ?

    But my real point is that the deficit would sky rocket with an increase in interest rates because most of it is funded by short term money
    The absolute value in dollars in the short term, maybe. The relative value as a percent of current dollar GDP over the medium term would probably go down. Also the trade balance would improve as inflated US dollars make imported goods more expensive for Americans to buy. Plus any existing dollar denominated debts, from consumer loans to gov't T-bonds, wind up being devalued thus easier to pay off in the future with inflated dollars. But I agree that there is a risk to many segments of the US population whose incomes will not keep pace with the coming inflation.

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