[quote=partypup][quote=SDEngineer]
Europe is, in fact, trying to inflate their way out – just as we are. They simply have been trying to inflate less than we have.[/quote]
That’s the point I’m trying to make, SD. How can a less-inflated currency be at greater risk than a more inflated currency? I don’t understand.[/quote]
The answer is that it will depend on which method is more effective at turning an economy around.
After all, in a fiat money system, money essentially represents a portion of that country’s GDP in proportion to the total amount of currency. The U.S.’s actions are causing that money supply to grow, which means that holding GDP constant, the money is worth less than in Europe where their monetary supply is growing slower. The U.S. is betting that the money spent will end the recession and cause the GDP to rise proportionally faster than Europe’s. If this does happen, than the U.S.’s method worked better (at least in this case) than Europe’s.
Only time will tell which method works better – but we do have a recent example in Japan which largely avoided inflating their currency to deal with a similar economic bubble – and the results of that were not exactly good. Maybe neither of these approaches will work either – but it’s really uncharted territory.
