Mortgaging our Children's Future - Not!

September 8th, 2012

today's ditty:  The Credit Card Song by Old Man Pie

It tuns out that the slogan "we are mortgaging our children's future" (Ronald Reagan sound clip, United Church of God: mortgaging our children's future) was a couple of generations off the mark.

As we ruminate over the growing federal debt, an easy way to reduce it is becoming apparent - that is to simply devalue the debt via inflation. Just increase the money supply and dilute the value of the dollar. This diminishes debt, and as a bonus, it also diminishes some of our government's future obligations. It's actually a very sensible thing to do. It's worked in the past, and it's working now.  And, as long as the inflation doesn't get away from us (see hyperinflation), it will not be overly disruptive.  

Also, since the entity that controls our inflation rates (the Federal Reserve) is independent from our government, setting the inflation rate to just the right level won't require an act of Congress.

With an inflation rate of 6.25% per year and no overspending, the real value of our current $16 trillion federal debt would decrease by $1 trillion in one year's time (6.25% of 16T = 1T). Or, more realistically, there could be deficit spending of up to $1 trillion in that year with no increase in the real value of the federal debt.  Our current inflation rate of 3.1% is right now diminishing the $16 trillion debt by $500 billion per year. So with 2012's deficit spending of $1200 billion, the real debt increases by only $700 billion.  It's like magic!

By the way, inflation also diminishes cash savings, and fixed value pensions. (Hey, something has to give - you can't eliminate debt for free!) Senior citizens with savings and pensions (like me) unfortunately will lose out. 

So HA!   We weren't mortgaging our children's future after all.  We were actually just spending away grandma and grandpa's retirement plans.  

You know that trend of the 30yr old kids moving back home with their parents?  That home may become a real cozy place as the grandparents move in too.