The NYT editors chide the Fed for worrying about inflation. They believe we need more of it — lots more.
A more aggressive strategy would be letting inflation rise above the Fed’s comfort level of 2 percent or so to, say, 4 percent. That could help the economy by easing the repayment of debt.
Read that last sentence again: “That could help the economy by easing the repayment of debt.”
They apparently expect our friends in China, India and other countries that have loaned us money to be happy receiving repayment in dollars that are worth less than the dollars they loaned us. Wouldn’t you want that if you loaned money to someone?
By the way, it must have escaped the notice of the newsies at the NYT that the Bureau of Labor Statistics last month reported an annualized inflation rate of 3.6 percent and rising.
I wonder if anyone at the NYT has ever heard of “the rule of 72.” It works like this:
Take any two numbers and multiply them to come up with 72. If one number represents percent, and the other represents time, that’s how long it takes something to double, or fall by half, depending on which direction you’re going. For instance:
8 x 9 = 72. If you invest a dollar and receive an annual return that averages 8 percent, in nine years you will have two dollars. Here’s another example: 4 x 18 = 72. If you invest one dollar and receive an annual return that averages 4 percent, in 18 years you’ll have two dollars.
If inflation averages 4 percent a year, one dollar would be worth 50 cents 18 years later. Another way to put it would be to say you would need two dollars to buy what one dollar bought 18 years earlier.
Inflation destroys money and this is what the NYT wants. The editors give nary a thought to what lenders who gave us real money might think being repaid with Monopoly money.
Today’s dollar is already worth barely five cents compared to 100 years ago. Money backed by nothing eventually becomes worth nothing. Gold hasn’t backed the dollar since President Richard Nixon “closed the gold window” forty years ago because France and some other countries, concerned about this government’s monetary and fiscal policies, started cashing in their dollars for gold.
The higher inflation rates are, the more quickly our money becomes worth nothing.Think money can’t become worth nothing? Remember your history books and the Weimar Republic in Germany, when wheelbarrows full of money were needed to buy a loaf of bread. Remember contemporary history, when just a few years ago pockets full of Zimbabwe billion dollar bills couldn’t buy a bag of rice.
Inflation is a stealthy form of default that harms citizens who live under a government that inflates along with those who loaned the government money. By calling for higher inflation to make it easier for the government to repay its debts, The New York Times is calling for a subtle form of default.