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Loan Modification

: Mortgage Lender Implode-o-Meter

We're Just Gonna Inflate Our Way Out of It!...Oh Really?

By Implode-Explode Heavy Industries

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Small annual budget deficits with large long dated debt obligations could easily and absolutely be reduced in "real" terms vis-à-vis a process of accelerating inflation. The problem, per se, could very much be inflated away. But this set of circumstances stands in polar contrast to the current reality of the Federal Government debt structure and ongoing and accelerating short term funding needs. Message being, the US will not be able to inflate its way out of what will be growing budget problems as we move ahead.

This is a very insightful article. Essentially, Pretti is saying that the Fed will be forced to balloon its balance sheet forever, because of the reliance on short-term financing. It will be impossible to freeze the balance sheet then let inflation work to "inflate it away". The only other alternative to save us without implosion is massive economic growth. That's what the Fed is hoping for, but there is essentially zero chance of that.

So it looks like the ship of state finances is headed for the rocks. We see this ending badly... with roving sovereign defaults (imposed by a panicky market) and currency devaluation (the only way to "inflate away debt" when it will not happen "naturally").

Full post as published by Mortgage Lender Implode-o-Meter on March 05, 2011 (boomark / email).