The Weimar Theory

This is an article I really enjoyed reading and I recommend you go to the above link.

"In the last ten weeks total Federal Reserve Credit increased by $1290bn. This is an increase of 151% over the same period a year ago, and an annualised rise since Sept 10th of 755%! This degree of expansion in “base” money is without precedent in the Fed’s history."

I share the authors view as the inflationary nature of current US Federal Reserve actions. However when he states that this is not the Great Depression (version 2) he is only partially correct. It is a multi-generational economic disaster precipitated by the same cultural and generational factors as the one that started in 1929. Its underlying characteristics of rapid monetary expansion, contained price inflation (for different reasons), and asset price bubbles are also shared.

A controlled increase in inflation will have very positive effect in reducing consumer indebtedness, as opposed to allowing deflation to persist which would be catastrophic. So we find ourselves in a balancing game where modest inflation will facilitate a de facto default on debt. I very much doubt we will see hyperinflation Weimar Republic style but high inflation levels, as in the high teens - and accompanying interest rates are very likely. While this would assist with mitigating consumer debt burden, it could also result in a rapid decline in real incomes as increases in consumer prices outstrip increases in wages.