Newsgroups: talk.politics.theory,talk.politics.misc
From: kwee@oracle.uucp (Karl Wee)
Subject: Death of America 5
Reply-To: kwee@oracle.uucp (Karl Wee)
Organization: Oracle Corporation, Belmont, CA
Distribution: usa
Date: Sat, 26 Dec 1992 20:49:48 GMT
X-Disclaimer: This message was written by an unauthenticated user
              at Oracle Corporation.  The opinions expressed are those
              of the user and not necessarily those of Oracle.

>   For one thing, you can always inflate your way out of the debt.
>   You don't need hyperinflation to do it.   There are *plenty* of
>   historical examples of countries which endured 5-10 years of 
>   6-10% inflation and in doing so got their national debts under
>   control.  Many European countries have done this -- often you
>   end up with stagnant economies like the UK's but that's not
>   the same as mile-long bread lines and Hoovervilles at the 
>   edge of every city.

In this country, in order to "inflate away the debt", the Federal Reserve has
to agree to buy US bonds with "empty money", a process equivalent to printing
money.  The chairman of the Fed operates independently.  Will he be willing
to make this vastly unpopular (inflationary) decision which is historically
directly counter to the Fed's traditions and policies in order to bail out
the politicians who have year after year ignored his advice about the
deficit and gotten us into this mess?  Or will the economy die of panic
in the financial markets and bank failures before he makes such a
decision?

Furthermore, in order for a "mild" inflationary solution like this to work,
Congress, the President, the Fed, and the public must cooperate closely to
perform a difficult and delicate balancing act of avoiding too high an
inflation on the one hand, and making it effective on the other.  It will
pitch interest groups against each other and much depends on who have better
access to the big government.  Do we see Americans being able to pull
together?  AGAIN, like all other solutions, even this is getting more
difficult and delicate the more we delay facing the problem.

Why rely on this?  Why speculate at all?  REMOVE THE DEFICIT OR AT LEAST
SHOW THE DETERMINATION TO DO SO.

I argued a long time ago with Peter Nelson about this point.  I have
to stress again that, ultimately speaking, the debt crisis is a tremendous
RISK (with a bottomless downside) that would be stupid for any society to
get into, much less wander into in a dreamy state like we're doing now.
Sociology and economics are not sciences with reproducible results.  Just
because some European countries have survived this problem doesn't mean we
can do the same because so many things are different.

Conclusion: There is a vast vested interest in keeping the public from
discussing the deficit seriously.  They are mainly: 1. the government, since
politicians don't want to make their jobs tougher and want to maximize their
chances of passing the time bomb to their successors.  2. the investment
banking community, who currently have large holdings for themselves and
their valued clients in government bonds.  They don't want the uncertainty of
market upheavals and want to keep things steady so they can keep making
money for as long as possible.  I'm willing to bet that most of them
are quitely getting out of anything that loses value when
interest rates rise or inflation hits.  As evidence, consider the
stubbornly high yield of long-term US bonds during the past year
when interest rates were falling again and again.

These people actually WANT to delay the crisis to suit their private
purposes.  However, the more it is delayed, the worse it will be for the
country.  It's less a conspiracy of silence than a conspiracy to keep the
volume down.  These people are not fools, but we'll be taken for fools
unless we turn up the volume now.

- Karl Wee