The US faces essentially 2 choices: It can default or it can inflate.

Bankruptcy would be better then inflate. Both ways lead to economic disaster, but the first means that credit dives immediately so that the borrowing will stop and they will be forced to actually do a budget. The inflation just means that the cost interest rates for new borrowing will adjust to take inflation ito account and our new debt will just be as expensive as always.

If that was the only choice and I was BB I would inflate.

All inflation is is just a sneaky tax. They dilute the value of money to make interest cheaper and while that is going on value is being sucked out of the economy.

Why is one of your options not to just raise the taxes on every American by 20%? The damage it does is essentially the same.

There is a third option based on justice:

1) Set reserve requirements to 100% to put the banks out of the counterfeiting business. This by itself would be massively deflationary as existing loans were paid off but continue to 2) please:

2) Send every American adult, savers and borrowers alike, a large and equal check of debt-free full legal tender fiat, United States Notes.

The government backed banking cartel has victimized the entire population with phony money (so-called “credit”). The entire population should thus be bailed out.

And that’s endemic in today’s acedemia. No wonder our policies are so screwed

And the worst effect is the Indirect Theft of Wealth. This amounts to a sick tax on the poor who spend higher percentages of their incomes on inflation sensitive things like fuel, food and clothing. Similarly this theft reduces the value of savings. Without savings all businesses suffer. This is the reason why lower money values does not seem to stem the increases in imports.

But the point I hate most is the authors statement that because Social Security increases with wages, well old folks on fixed incomes are fine? Older folks are the ones with the most savings in the safest assets. Ergo these are the people who get robbed the most, or worse these folks have to invest these savings in riskier assets to keep the current levels of income.

You nailed it. Thanks, Mr. French.

At one time, back in the seventies, I had the same question(s) that you have. To paraphrase what F.A. Hayek said to me:

Long term deflation will probably never happen because even though fewer dollars buy the same amount of goods, the masses will never accept it because, “They will feel poorer.”

On the other hand, even when more dollars buy less, the public will feel richer because they have a greater amount of money in their pocket.

Unfortunately governments don’t look at it that way, or in any sane way. By increasing the money supply, initially people are unaffected, until inflation starts to really take off, and their wages (which are always the last thing to rise) fall behind. Perhaps an example is in order.

Let’s say you earn $100.00 per week, and bread goes from $1.00 per loaf up to $1.05 per loaf. because the supply of money has increased, and more dollars are chasing the same amount of goods. For the most part, that increase of five cents per loaf won’t hurt you much. But as time goes by, that $1.05 loaf of bread will go to $1.25 per loaf, as well as the prices on a number of other goods you buy, i.e. gasoline. Meanwhile, you are still earning $100.00 per week, and you are starting to hurt because wages increases always lag.

An excellent example of this phenomena was the housing bubble. While wages remained almost stagnant, housing prices skyrocketed because the government insisted that everyone should own a house, and for awhile (particularly in California) houses weren’t being built fast enough (because of absurd environmental and zoning regulations. Banks, because of government regulations, loaned mortgage money with virtually no down payment, and thereby increased, almost overnight, the demand for single family homes, causing prices to escalate at an unsustainable rate. For years, house prices in most areas went up by 3 or 4 per cent. Then, almost overnight, housing prices went up a 10 to 25 percent rate, with no increases in wages for the ‘little people’.

Now I know my explanation may not be perfect, but I suspect you guys will get my point.

But . . . have no fear . . . the rise in the price of gold from from $300 per ounce to $1,500 during the past few years indicates a compounding annual rate of nearly 12%. If, in fact, gold runs the course as housing did, we have a bubble that will eventually pop. If in fact the idiots in Washington, D.C. have installed an inflationary spiral, then those who feel gold will go to $5,000+++ will be rewarded.

As the philosopher, Albert Camus said, “We live in an absurd world.”

The Chicago economist then writes that the Federal Reserve is charged with limiting inflation, “which it can do over the long run by limiting the supply of money and similar assets in the hands of the public.”

The very term “supply of money” he uses is misleading, as money isn’t a consumable. Cutting off this “supply” wouldn’t cause people to run out of money.

You’ve redeemed yourself (in my eyes) after your piece on the “Atlas Shrugged” movie ! ! !