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December 12, 2012



That's a lot of *mights* and *ifs* as far as inflation goes. The WSJ news and editorial pages whined and moaned about inflation and refused to acknowledge the existence of a liquidity trap for months and months after the crisis. Now most agree that inflation in a liquidity trap is very unlikely- prices won't rise when the enduring problem is low aggregate demand.

Getting down unemployment down below 6.5% isn't so bad, especially given the Fed's dual mandate to grow the economy and keep unemployment down.

The wiki article you link about monetizing debt has some upsides that match our current problems: "It is in essence a "tax" and a simultaneous redistribution to debtors as the overall value of creditors' fixed income assets drop (and as the debt burden to debtors correspondingly decreases). If the beneficiaries of this transfer are more likely to spend their gains (due to lower income and asset levels) this can stimulate demand and increase liquidity. It also decreases the value of the currency - potentially stimulating exports and decreasing imports - improving the balance of trade."

Hey, not so bad. Improving the balance of trade and acting as as stimulus.

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