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Bailing out banks doesn't cause inflation, unless the original asset prices added enduring inflationary pressure. It just returns the bailout recipient's balance sheet to the status quo ante, and if that wasn't inflationary in 2007 then there is not a snowball's chance in a blast furnace that it'll be inflationary now. (It avoids deflation, but I don't know anyone other than the Austrian nutcases who considers that equivalent to causing inflation.)

Bailing out banks is crap policy because it bails out bondholders who should have gotten to see their wealth vaporise, and rescues management that should by all rights have been subjected to prosecutions and berufsverbot. Not because it causes inflation - any inflation from excessive asset valuation has already taken place prior to the crisis.

That aside, there is nothing wrong with eight or nine per cent yearly inflation that depreciating the currency by six or seven per cent vs. the €-Mark won't solve. OK, that's probably a little too aggressive, considering the US' foreign trade balance - but depreciating the currency by three or four per cent per year while retaining the 2-3 per cent yearly domestic inflation target is certainly possible.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Dec 10th, 2011 at 04:41:41 AM EST
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