Krugman on European Financial Suicide

[alice wellintown]

Krug has been advocating inflation because he thinks the recovery can
be improved and  sustained by eroding the real value of debt and by
attracting cash to investment. This is textbook economics and it would
do exactly what Krug wants.

Here is what he wrote in the NYT recently:

large parts of the private sector continue to be crippled by the
overhang of debt accumulated during the bubble years; this debt burden
is arguably the main thing holding private spending back and
perpetuating the slump. Modest inflation would, however, reduce that
overhang — by eroding the real value of that debt — and help promote
the private-sector recovery we need. Meanwhile, other parts of the
private sector (like much of corporate America) are sitting on large
hoards of cash; the prospect of moderate inflation would make letting
the cash just sit there less attractive, acting as a spur to
investment — again, helping to promote overall recovery.

So, it's not merely a matter of Krug feareing deflation; he wants to
bail out the bubble debtors and move cahs to capital investment.

Like a hair of the dog, Miss, that's all. Yeah, but who is going to
pay for it? That cash on the sidelines might be paid to current
investors, those who have their money at risk and should be
compensated. Buy back some stock, retire some debt early, pay
dividends to stock holders, this includes all of us tax payers who
invested in the bailouts. Make us whole, first, and then send us a
check. And why inflate the houses under water and let home owners pay
off the bloated mortgages with chaep money? This won't do anything but
mainline the junkies. Of course it will work for a time, but the sold
rock, the prudant and frugal and the monies lent from those who save
and invest will take it on the chin.  No thanks.