European Tribune - The Crash is past. Comes now Inflation.

On a number of blogs last week, a number of people asked what can be done. Well, the truth is the chance for fixing it - at least fixing it in a way we might find acceptable - is past. Bush, Paulson, and Bernanke, and the governments and central banks of the G-7 have already embarked upon the course they will follow over the next year to three years - they are inflating.

One of the causes of the Great Depression was the pig-headed monetary policy that was followed in the aftermath of the crash of 1929. "Fiscal responsibility", balanced budgets, high interest rates, concern for inflation above concern for employment, etc.

At least in this case, allowing the $2tn of credit to just disappear will, as you say, contract the economy substantially. When loans are deafaulted on and written off, the money they represent ceases to exist, therefore it is not necessarily a bad thing to inflate to get that money back into existence.

We have met the enemy, and he is us — Pogo