In a free-market economy, with the state we’re in today – way over-borrowed – deflation is the clear outcome.
But we absolutely do not live in a free-market economy. Inflation seems to be the easiest way for most homeowners (= most voters) to default (in terms of real value) on their mortgages whilst keeping their homes. I’ve concluded that whatever makes the vast majority of voters happiest is what ultimately happens.
Saying that we’ll have deflation and that the resulting crisis in the home mortgage markets will be resolved by a govt bail-out instead just begs the question of what’s next. A bail-out moves responsibility to the govt for repaying all the investors in mortgages. A lot of those investors are foreign. Repaying them will become burdensome, and that next problem will then be solved through…… you got it! Inflation.
