Tuesday, April 8, 2014

Zoho: Inflating Debt Away

At Historinhas, Marcus gives us The new “one size fits all”: 4%. The post is a look back at calls for a higher rate of inflation than the 2% the Fed promises to deliver.

Several quotes in the post agree with the one that says the reason to push inflation higher is "to leave more room for nominal rate cutting during bad times." That just seems an odd reason, to me.

I want to look at the effect of a higher inflation rate on debt and prices.

Enter values in the yellow cells following the examples given. The graph shows the ratio of debt to nominal GDP for two different rates of inflation. Above the graph, in Column F, the spreadsheet displays the increase of prices after 25 years at the two inflation rates you entered.

This all assumes that your income inflates at the going rate, and your share of income doesn't lose ground.

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