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Gold/Mining/Energy : Big Dog's Boom Boom Room

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To: Fiscally Conservative who wrote (147919)	3/22/2011 5:24:13 PM
From: Sweet Ol	4 Recommendations Read Replies (1) of 206167

The problem with inflation to solve the debt crisis is who gets hurt the most. Obviously people on fixed income get hurt because their savings are worth less and they have to go deeper into their capital for food, gas and etc. Therefore they do not spend as much which is a drag on the economy. Middle class working folks get hurt by inflation also. More of their income goes to non-discretionary spending and that is also a drag on the economy. This can lead to stagflation where costs go up but incomes do not go up proportionately. This of course means less tax revenue to the government and therefore they have to borrow to pay the interest on the debt. The interest rates go up and you can get into a vicious cycle or death spiral. I highly recommend Reinhart & Rogoff's book, "This Time Is Different." They examine all the sovereign debt crisis in the last several hundred years and the vast majority of them end in some form of default. Only in a few cases was the economy able to grow fast enough to get out of the problem. Inflation works only when most of the debt is held by foreigners instead of the citizens. It is a real problem and the solution is not simple or obvious. Our problem is compounded because very few of the productive segments of our economy have been growing for the last couple of decades. The main growth in jobs has been in the government sectors and the financial industry. Growth in government is counter productive and the finance sector is really just a shell game that moves money around but does not produce anything. It is a zero-sum game. I also suggest John Mauldin's new book, "The End Game" which is all about this very topic of how we get out of the debt crisis. I am only about half way through it, but it is very thought provoking. It is an easy read. Back to the original topic, POO may or may not go up with inflation. Reduced demand due to high price may prevent it from keeping up with inflation. All in all, this issue is more complicated and complex even than long range weather forecasting. Time will tell!!!! Blessings, JRH

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