Friday, January 25, 2013

Fitting some pieces together

Come to think of it...

I've been saying since forever that excessive debt hinders growth.

Some time back I looked into the erosion of debt by inflation.

Lately, I've been noticing that real GDP growth was consistently better during the Great Inflation than at any other period in the data FRED provides.

Now I'm thinking it was the erosion of debt during the Great Inflation that enabled the superior economic growth.

What this would mean is that, already during the Great Inflation, debt was excessive.

What it means for you is that if we want good growth without inflation, policy has to help you get your debt down to a very low minimum.

Something you always wanted.


Luke Smith said...

This was the basis of the Free Silver movement. Indebted farmers wanted a bimetallic standard, or as we would say, they wanted an increase in the money supply (debasement). This would increase the price of the crops, increasing their income and helping them to overcome debt.

The dynamics between then and now are different - i.e.(ural vs urban population, debtor bankruptcy protection, non-agriculture non-export based economy, etc. However, we are in nearly the same boat.

João Marcus said...

NA, you may have not noticed but I did a post on your "logic".

The Arthurian said...

ahhh... Good title!

I will check it out immediately.