With all the overspending by the Obama administration, on top of an economic downturn, I have figured all along that the next step would be inflation.
You see, if the government “owes” one billion, and inflation goes up, then voila, in a few years the “one billion” they owe is now only half a billion in terms of real money.
Some of us are old enough to remember when Jimmy Carter pulled this stunt.
I was in Africa at the time, and had saved one year’s salary so that on my return I would be able to live until I found a job. (It was a good plan: I was in Africa twice, and both times, I came home prematurely because political changes made it dangerous for me to stay in the countries).
One: My money could only buy half of what I could have bought five years earlier.
Two: After my second stint, Regan had taken over. Mortgage rates went sky high: My first mortgage was 12 percent. For my home, no problem (I was single and bought a modest home). But to buy my office and furnish it took all my savings: and it put me into debt that took me twenty years to pay off.
Ah, but the happy folks at the New York Times economixblog, or at least their guest poster Casey B. Mulligan, an economics professor at the University of Chicago, assure us:
Economists disagree about the prospects for inflation. But inflation may be something to welcome, not fear.
The School of Economics at University of Chicago used to be “conservative”, (so no sniping at liberals). But Mulligan supports his thesis by citing a paper by John Cochrane, also at University of Chicago, which discusses the “upside” of rising consumer prices, higher interest (and mortgage) rates, and of course the virtual shrinking of government/consumer debt (and of course the shrinking of the savings of those of us who were frugal).
It is probably a better alternative than printing more money, but that is not the only choice, of course.
So the real question is whether the economic damage from inflation is more or less than the economic damage of raising payroll taxes, implementing a national sales tax or paring some of the governmentâ€™s spending promises.
No, if you “cut government spending programs”, people will get upset, never mind the huge porkbarrel programs won’t be cut, only unimportant things like Medicare funding or social security.
But those of us who always bought modest houses and lived within our means might not agree with his statement.
Â Inflation would alleviate some damage done by the housing market to the wider economy. Specifically, inflation would raise prices of homes, among other things. Higher housing prices would pull a number of mortgages out from under water â€“ the case when more is owed on a mortgage than the market value of the house that collateralizes it â€“ and thereby reduce the number of foreclosures.
Yes, all the spendthrifts who bought big fancy houses win again, but higher prices will destroy the ability of those of us who are stupid enough to live within our means to live in the now overpriced houses.
And the “upside”? The Democrats might just keep their seats in Congress if they can show all these “compassionate” programs while hiding the economic damage of hidden inflation.
So maybe the New York Times will pretend that inflation doesn’t hurt folks like myself who live frugally and will see their savings shrivel to benefit those who bought expensive overpriced homes.
But some folks do notice.
As Senator and fellow physician Tom Coburn writes:
The American people know the consequences of a Congress that values “doing something” ahead of nothing. Congress did something to make housing more affordable and inflated the housing bubble. Congress did something to make college more affordable and caused tuition rates to skyrocket. Congress did something to make health care more affordable and created programs that are harming patients and threatening to bankrupt our country. The list goes on.
The kind of change America wants is a more liberal use of the word “no” in our government. They want to hear politicians say no to deficit spending, no to earmarks, and no to policies that expand government rather than individual opportunity.
So what is the alternative? Those “racist” teapartiers?
Ah, but isn’t it interesting that the recent primaries in South Carolina saw the nomination of two fiscally conservative Republicans for office: neither of whom are members of the old boy’s club of country club Republicans.
And I find it ironic that the new face of the tea parties just might be a lady whose parents immigrated from India.
Nancy Reyes is a retired physician living in the rural Philippines. She blogs at Finest Kind Clinic and Fishmarket.