How do we inflate our way out of these problems without a credit expansion that will only make them worse? It seems to me that the only way out would be inflationary spending. That is, direct money creation by the Treasury Department to spend on government programs unfunded by debt or taxes.Read it at CNBC NetNet
Do We Need Inflation to Cure the Economy?
by John Carney | Senior Editor
John seems to think that government spending to provide the space for increased non-government saving desire and to close the output gap would be "inflationary spending." Why?
It seems that term "inflationary" is being used so loosely as to be misleading. In the loose use, all spending is inflationary. If so, then "inflationary" is redundant and can be eliminated using the rule of parsimony. It's really significance is rhetorical rather than descriptive, i.e., normative in that is based on moralizing.
By definition money saved is not money spent, and closing the output gap means bring more existing capacity on line in order to meet rising demand. Inflation doesn't kick in until effective demand is rising faster than the economy can expand to meet it. Where's the problem so many idle resources, like millions of workers idle, notional demand high, and too little money in the system to fund effective demand, deleveraging, and rebuilding drawn down savings. And lack a rebuilding of consumer balance sheets and increasing workers incomes, consumer lending, a primary economic driver, continue to lag.