The government would quietly but desperately love to inflate our way out of this mess–destroying the dollar so the real burden of our mountain of debt shrivels to a molehill. This remedy, of course, would punish everyone who has saved up a nest egg or lives on a fixed-income, but they’re likely to be considered an expendable minority.
The risk, of course, is that this prayed-for inflation gets out of control and sends us straight back to the 1970s. That’s a ghastly thought, says former Fed chief Paul Volcker–so much so that we shouldn’t even start down that road.
Real Time Economics: Mr. Volcker, who is also part of President Obama’s economic team, was the keynote speaker at Columbia University’s sixth annual centre on Capitalism and Society conference, held Friday in New York. He touched on the “shocking” international nature of the current crisis, adding “I don’t remember any time – maybe even the Great Depression – when things went down quite so fast and quite so uniformly around the world.”
Yet he cautioned that the Fed shouldn’t lose sight of a key part of its mandate — to fight inflation. “I think ‘a little inflation’ is bad, because a little inflation means some more inflation,” he said. “I don’t think here’s any arguing for a little inflation solving our problems in any realistic sense.”
“I don’t want to lose the accomplishment of the last 30 years of the central importance of price stability and the role of an independent central bank in maintaining that price stability,” he said.