In a recent article that promotes and encourages inflation to diminish America’s financial woes, author Nin-Hai Tseng discusses how inflation can curb the country’s doldrums.
Tseng points out that even the Federal Reserve agrees with her theory, although not overtly and quotes reputable reporters who agree. James Surowiecki of “The New Yorker” recalls how rising prices post World War II helped to lower the national debt. However, in reference to inflation today, he says, “"Boosting inflation isn't the right policy, but it may just be the correct one."
Even Tseng emits that the notion of inflation making a positive impact today might be a “bit of a stretch” and that the bundle of economic uncertainties is leaving many Americans stuck in the dark forest. However she still believes that a little more financial pain will work out for everyone in the long run.
How Can Inflation Possibly be Good for America?
Tseng believes that the country just needs to take its medicine (in the form of inflation) and try to struggle through small hardships to get to the other side. One glaring issue not mentioned in the article is that many Americans have been struggling for so long that they may not have any more struggle left. Inflation may be the tipping point for giving up.
In her Fortune Magazine article, “Three Reasons to Cheer Inflation,” Tseng offers three reasons why inflation could be the saving grace America needs:
- Increasing prices for goods and services will soften debt. Truthfully, a tremendous number of consumers were caught up in the spending frenzy and today have little to show for it with the exception of a home that is worth considerably less than what they shelled out years ago. Tseng believes that if prices rise, the value of assets would follow.
While this notion may work in theory, in practice it would fail today. In fact inflation will do the opposite to assets that are supported by debt—such as real estate. Sure, if the Fed makes the dollar more important, homeowners will “feel” as if their home is worth more, however no one will still be able to afford it. Prices and rates will rise, continuing to leave the lower and middle class out in the cold while they to try avoid foreclosure and dump a home that’s been on the market too long.
- Inflation will stimulate spending. Although the malls may be flooded with people, examine what most consumers are carrying—nothing. Today’s entertainment is to browse at the mall, but not buy anything. People have cut back on spending because a high number of Americans are either out of work, experiencing extreme debt or are working harder for less money.
Tseng contends that the notion of inflation “on its way” will light a fire under America’s behind’s and prompt massive shopping sprees in an effort to avoid paying jacked up prices. While this idea may seen logical from an economic theoretical standpoint, no one today has the money to even embark upon a shopping spree. In fact, knowing that prices will soon rise will give way to even more debt as Americans try to squirrel away items they may not be able to afford now or in the near future.
- Another way inflation will save our country is that it will inadvertently create jobs because people will be spending and investing more, Tseng declares. Like a hamster on a wheel, employers aren’t hiring more workers due to lack of demand and consumers aren’t spending money because they don’t have a job. Tseng believes if the market was flooded with cash, employers would welcome new hires and give the economy a shot in the arm.
Once again, good idea in theory, but it’s not going to work right now. In order to flood the market with money you must have money, which is the inherent problem many Americans are experiencing. While the top 2% are still clutching onto their cash, the rest of the country continues to scrape together a few cents to buy bread.
While the Fed tosses and turns in its sleep, trying to decide what to do about the economy, considering the notion of inflation may be one that looks good on paper, but produces a whole new mess in reality.