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Jake, I think we basically disagree on the virtues of inflation and devaluation.
What I'm trying to figure out is why.
But structural debt, which is recurrent as is the case in the EZone periphery, cannot be dealt with in that way.
Investors (savers or whoever) will invariably factor in a country's propensity to erase debts by inflation/devaluation and make you pay through the nose.
High inflation invariably has a negative impact on society.
And to think that you can control inflation at 8 to 10% is absurd. High inflation invariably tends to spiral out of control
High inflation also encourages high-risk investments, i.e. speculation,
Preventing unwanted speculation requires heavy-handed and intrusive regulation of the financial sector. Attempting to prevent it by manipulating macroeconomic variables is like hunting bears by setting the forest on fire.
and discourages stable long term low interest investments need by the manufacturing industries.
Anyways, leaving aside the thin air of economic theory, the reality of the economic situation is that pumping more money into the periphery would reproduce the causes that led to the crisis in the first place and produce another consumer bubble without building domestic manufacturing industry.
If you wish to maintain the fixed exchange rate regime, then of course no action which exclusively targets the deficit countries can resolve the structural cause of the crisis, because the structural cause of the crisis is that surplus countries are running unsustainable current accounts surpluses.
However, a policy of forcing the surplus countries to underwrite the current account deficits of deficit countries would stabilize the system, end the humanitarian catastrophe, and encourage the surplus countries to stop pursuing harmful surplus-generating policies.
Friends come and go. Enemies accumulate.
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