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January 08, 2015


Luis Enrique

yep. when we had inflation caused by oil / terms of trade we were rightly told to ignore it. Same should hold.

same (similar?) point above govt debt applies to other debts. here is Tim Harford: " Low inflation means that a 30-year mortgage really is a 30-year mortgage rather than five years of hell followed by an extended payment holiday. "



So, Luis, we should simply ignore unemployment, increasing poverty etc? And the fact that 30 year mortgages will get more and more expensive relative to their original costs? You are bizarre.

Luis Enrique


there is a difference between inflation (and deflation) caused by movements in prices like oil, or exchange rate shifts etc., which if not exactly one-off is not the sort of thing that happens year after year, and inflation (or deflation) that reflects prices being adjusted across the economy, including wages, which can be self-perpetuating. I think the first point Chris makes is that we are probably seeing the former, not the latter. If so, then the argument for ignoring that sort of inflation also holds for deflation.

So I think you misinterpreted what I meant. Even so, it's quite a (bizarre) leap you thinking I'd ignore deflation to supposing I'd ignore unemployment and poverty.

The second para of my comment suggest that persistent low inflation (or deflation) certainly should not be ignored, at least as far as debt dynamics go.

Ralph Musgrave

I don’t agree with the widely held assumption, which Chris seems to accept, namely that to cut the debt, austerity is needed. To cut the debt, all we need do is print money and buy back chunks of debt: i.e. implement QE.

And if that proves too stimulatory / inflationary we just raise taxes and “unprint” the money collected. As long as the DEFLATIONARY effect of the latter equals the INFLATIONARY effect of the QE, the net effect on GDP is zero. I.e. no austerity is involved.

That “no austerity” point is certainly valid in the simple case of a closed economy. In contrast, in an open economy, i.e. where foreigners hold a significant proportion of the debt, the above QE involves a certain amount of “repaying foreign creditors”, and that means a standard of living hit. But I’m not moved to tears by that: no long term harm ever came from paying off one’s creditors.


QE is not a solution since it helps only asset holders and as seen in UK it has distorted the asset prices.

Basic Income is the only solution.

Ralph Musgrave


The vast majority of QE (about 99% in the UK) involved buying government debt, not other assets. Obviously that in itself will raise asset prices. But that’s to fail to see the wood for the trees. In other words the really important question is: what’s the OVERALL effect of the state incurring debt and then buying back that debt?

The INITIAL effect of the state borrowing rather than raising taxes will be to REDUCE the price of other assets. So when the state QEs its own debt, I’d guess the net effect on other assets will be roughly neutral.

Re basic income, that might well be a good idea, but it doesn’t have much to do with the above arguments put by Chris.


Wild deflation in Portugal married with highest increase in November retail sales in eurozone. Go figure!

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