A good debate on the limits of the deficit between Paul Krugman and Jamie Galbraith. Krugman argues that, although not important now, deficits may translate into inflation. Further, he seems to suggest that insolvency is possible even when debt is denominated in the country's own currency. In this view, hyperinflation (the infinite inflation of Jamie's scenario) would follow.
The problem is that hyperinflations (the German in 1920s, the Latin American cases in the 1980s) were not a case of too much money printing resulting from fiscal deficits when the economy was near full employment. The simple explanation is that reparations (Germany) and foreign debt (LA) forced depreciation in order to service foreign (not domestic) debt. This in, in turn, increased the price of imported goods, which led to a reduction of real wages. Wage resistance led to foreign exchange-wage spirals. I formalized a model here (for those interested).
Subscribe to:
Post Comments (Atom)
-
There are Gold Bugs and there are Bitcoin Bugs. They all oppose fiat money (hate the Fed and other monetary authorities) and follow some s... -
By Sergio Cesaratto (Guest Blogger) “The fact that individual countries no longer have their own currencies and central banks will put n...
-
I was interviewed by Max Jerneck for his podcast, and he alerted me to this figure (see below), which apparently come from the Universidad ...
No comments:
Post a Comment