Let’s ignore the fact that our economy is tied to the world and a devalued dollar would cause us more problems than it could cure.
Let’s talk about the different between “price” and “value”. Those two terms are related but they aren’t the same. Regardless of the actual price, we have a value imbalance wherein people are spending 50% or more of their gross incomes to debt service their mortgages. If the feds try to inflate their way out of the price imbalance they still won’t make a dent in the value imbalance, except to make it worse. It’s true that the current debt holders won’t have to spend as much of their income to service their debt, but it’s also true that the dollars they net after eventually selling out their positions won’t have as much “value” as the dollars they spent getting in. So they still lose and they lose just as much as if there were no inflation and the market just does it’s thing.
And this is still based on a best case sceanrio that requires making a huge assumption about wages keeping pace with inflation, which they pretty much never do. Think about it. If all their other expenses for living go through the roof but their mortgage payment stays the same, they still need more dollars to make it through to the end of the month. Unless they’re making those big wage gains to match, they’re facing the same kind of dollar deficit that would cause them to default on their house payment. For that matter, if we could count on wage gains of any type to begin with, we wouldn’t be considering the current price structure to be overvalued in the first place.
The inflation alternative would easily prove to be more of a problem than the problems it would be intended to solve. And that doesn’t even begin to address the equity of bailing out the least deserving debtors – who are a minority – to the detriment of those people who had handled their money more responsibly. Think about the people who bought earlier, who did earn some equity; inflation cheats them out of the profits they legitimately acquired. Where’s the social justice for that?
