The Problems in Monetizing the Debt

By on March 14, 2010

Jeane Sahadi uncovers the pitfalls ahead if U. S. policy makers attempt to inflate our way out of the current dire debt situation. One problem is that there are too many large entitlement programs indexed to inflation such as Social Security and Medicare.

SMA Comment: About six years ago I broached the topic of exploding debt in a piece entitled “Will Debt Doom Us?” My conclusion then was that the debt had room to grow without burdening the system excessively as it stood at about 60% of annual GDP. The picture since the Great Recession has changed completely as the debt is now about equal to annual GDP. We are approaching the point of no return where the lifestyle of many Americans will suffer in ways that we can’t imagine now. Our only hope of taming the debt beast is that a wave of innovation causes productivity to expand at a rate unseen up until now. The odds are against us.


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