Krugman on European Financial Suicide

[alice wellintown]

It is not only the folks on fixed incomes, but all investors in fixed
income, that will be hurt by inflation.

So, if I retired in 1990 and invested 1mm in UST 30 year bonds, I have
been and I am still earning 9% (free from state tax). Not a lot of
money in my state, but I can live on it. Because I purchased these
bonds from the US Government at par, or at their face value of 1,000,
they are worth a great deal more than I paid for them. But I don't
want to part with them because even if I take my 1mm plus my capital
gain and buy the current 30 year UST, my income will be less and I
will need to pay tax on the capital gain. If I need to get a new hip
or take one of my widows on a trip, I can sell a few bonds, take a
capital gain, pay the tax. But, I'm happily stuck with my current
fixed income. But if Krug had his liberal conscience on the lever of
our economy and inflated to reduce unemployment and lift the mortgage
weight plus hloc plus college loan plus credit card debt off the backs
of home owner consumers, the buying power of my fixed income would be
reduced and I would quickly lose the option to sell some of my bonds
at a premium, to buy that new hip or take a widow tripping or to make
up for lost buying power because the value of securites would fall.

Inflation is not good for folks living on a fixed income. Most fixed
income folk get that incomme from some kind of fixed income
investment.

And, fixed income securtites will not perform well if Krug's pan is
implemented.

So, if I did not retire in 1990, and if I manage the pension for the
State, I have to match my liabilities with my assets (to a certain
extent) and the safest way, the best way to accomplish this is to
invest the bulk of the money in the pension in fixed incomve securites
and, and this is key, a good deal of it has to go into long term fixed
income securites because I need the yield, current and ytm. But if
Krug pulls the inflate lever, I will have a devil of time because the
value of my securities will drop (if only on paper) and I will need to
move some of the to risk investments to make up for the losses in
fixed income. Now, this is a simple scenario; no sense getting all
esoteric and shit, but it is as textbook as what Krug is talking
about.

So, I vote for Ben not Krug.