View Single Post
Mar18-12, 01:23 AM
P: 59
Quote Quote by CAC1001 View Post
Inflation acts as a tax on people, and a tax can decrease demand, not increase it, so it would depend. A $1 trillion stimulus is very large when you already are dealing with a very large amount of debt. And the real debt level faced by the U.S. government is likely far greater than the current $15.5 trillion, because the federal government is on the hook for the social welfare state and for the individual states and all their obligations, which drives the real debt load possibly up to $50 or $60 some trillion.
If you want to look at inflation as a tax, you have to view it as a tax on savings, not on material goods. Material goods prices should increase with inflation while your savings doesn't. This discourages saving. It drives demand up. In the opposite view, deflation has been one of the things that all economist fear most, as it decreases demand. Why buy a house if that house is going to be cheaper tomorrow?
Also you can't look at future obligations as how it would effect today. First future debt is hugely related to GDP growth which is extremely hard to predict and has continuosly proven the bears wrong on that aspect. Second, it has no effect on today. It is a tool to help plan for the future. Monetary base effects inflation, i.e. real dollars being spent in the economy right now. Not future dollars possibly being spent in the future effecting today.