Good post. Demand, growth and jobs is
the current problem and should be the current focus. But I don't think we can ignore the role of inflation altogether. I think it will play some part in this unfolding story at some point.
A prominent Keynesian economist/columnist over here has also been suggesting that significant inflation is at least one possibility.
He suggests that there are three possible ways out of debt - significant growth (looking increasingly unlikely as everyone embarks on growth killing austerity) - Defaults (looking almost inevitable to some extent e.g. Greece) - Inflation (whether managed or uncontrolled).
Elsewhere I have seen him suggest that some level of controlled inflation might be one of the least worst options in the absence of growth.
Link
Will Hutton in Link writes:
"No major advanced economy is doing anything to promote growth and jobs," says George Magnus, a senior policy adviser to investment bank UBS. He is right. Wherever you look, it is an economic horror story. Put bluntly, too many key countries — the UK in the forefront, with private debt an amazing three and half times its GDP, but followed by Japan, Spain, France, Italy, the US and even supposedly saint-like Germany — have accumulated too much private debt that cannot be repaid unless there is exceptional global growth.
That looks ever more improbable. Yet without growth there are only three ways out. The first is to increase public borrowing to compensate for the collapse of private borrowing. Private spending is bound to be depressed as individuals and companies lower their borrowing — so for a time exports (as long as other countries are buying) and growing public debts are the only reliable avenue to promote economic growth. But now there is a veto on growing public debt — due to the Tea Party movement in the US, the collapse in confidence in the euro and Britain's conservative government — and export demand from Asia is slowing.
The lessons from history are clear. Without publicly or privately generated growth there are only two other ways forward to pay down private debt after credit crunches: default or inflation, either containably managed or dangerously unmanaged.
What has unnerved the financial markets is that if the world cannot grow we are moving ineluctably towards these options. In the US, where the recent downward revisions to its economic growth statistics show how alarmingly weak its recovery has become, there has already been $300bn (183bn) of private debt write-offs, according to McKinsey Global Institute's research. Now the Tea Party movement has vetoed any creative action by the federal government to stimulate growth, the pace of writing off consumer and mortgage debt can only accelerate. The impact on the American banking system, house prices and consumer confidence is bound to be serious.
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