Fear is its own stimulus, or the roundabout Keynesian

Earlier I speculated that we might have an unintended stimulus: fears of future inflation encourage people to spend now while their dollars are worth something. It's roundabout Keynesianism -- the government "jolts" the economy back into shape by scaring the sh*t out of those who understand inflation.

Michael Kinsley touches on this in the WashPo:

If it's not the actual, secret plan, it will be an overwhelming temptation: Don't pay the money back. So far, even as one piggy bank after another astounds us with its emptiness, there have been only the faintest whispers about the possibility of an actual default by the U.S. government. Somewhat louder whispers can be heard, though, about the gradual default known as inflation. Just three or four years of currency erosion at, say, 10 percent a year would slice the real value of our debt -- public and private, U.S. bonds and jumbo mortgages -- in half.

Get it? It's a slow, large tax. The money you have in the bank will be worth half of what it was. The losers will be those who made good decisions (by saving and making sound investments) and the beneficiaries will be those who didn't (overspenders, housing speculators, frauds).

In this way, inflation fits with everything the Obama administration has done to date, which is to move money from wealth creators to wealth destroyers. (Bush did too, btw).

Similarly, the administration will get away with it on a rhetorical level: “Inflation? We're working on it. But we won't raise your taxes!”

It's like how they call it a “tax cut” when they send a check to someone who doesn't pay taxes. Genius.

Comments

[Torsten]

I guess the market agrees with your analysis...just look at what the gold price is doing...

[Jeff Paul Internet Millions]

Thanks for posting such vital information. I am new to the blogging scene. Any and all pointers are helpful.