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Genesis wrote..

Immediate inflation has a habit of creating a really NASTY external moderating mechanism. In the extreme case it is actually more likely to lead to revolution than Bondzilla ever could.

That's certainly correct, but it seems to me that one loses a major impediment to reaching that situation with this plan.

I may not understand the "bondzilla" mechanism correctly, but I am under the impression that, under the present system, as bond rates for new short-term issuances go higher and higher due to increased deficit spending, the gov't is forced to reduce spending levels in order to be able to meet the increasing interest payment requirements. Thus, this external moderating effect is essentially a "hard" negative feedback loop which forces a reduction of the profligacy before (or as) the higher inflation starts to kick in.

What I infer from your reply is that for the proposed system, the externally imposed moderating effect is the public reaction to the high inflation levels, i.e., the high inflation is not impeded/prevented, but only reacted to after it has reached unacceptable levels.

Or, perhaps, is my layman's POV too simplistic?

Last modified: 2010-12-23 05:54:54 by peterm99
Reason: fixed quote

2010-12-23 05:52:25


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