Wednesday, January 06, 2010

Just do it?

An interesting new NBER working paper by Aizenman and Marion (ungated version here), tries to figure out how much we will use inflation to reduce the debt to gdp ratio, which is predicted to hit 70, 80 and 100 percent in 2019 by the OMB, CBO and IMF respectively.

They argue that shorter debt maturities weigh against using inflation while increased debt holding by foreigners increases the attractiveness of using inflation and come up with a 5% inflation semi-prediction:

"When economic growth is stalled, the U.S. debt overhang may trigger an increase in inflation of about 5 percent for several years."

Go Ben, get busy.....????

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