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Yes, it is wrong to conflate the two.

The proposed "borrowing" for the stimulus, at least in the US, hasn't actually taken place yet. The argument over whether the proposed stimulus will create inflation is what I addressed above.

The "borrowing" that has taken place, to staunch the losses, is in the face of a massive de-leveraging and drop in liquidity ... it will be inflationary for a nation if it fails to staunch the losses at the same time that other nations succeed, but that is the risk of exchange rate collapse set to one side above.

Either the liquidity constraint continues, in which case there's no prospect of any inflationary impetus from the borrowing, or it doesn't, and the funds can be refunded, so there's no debt outstanding. Or, more likely, partway between the two, which would seem to be non-inflationary for the mix of reasons.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Wed Dec 24th, 2008 at 12:38:49 AM EST
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