How Much Inflation is Needed?

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Martin Hash
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How Much Inflation is Needed?

Post by Martin Hash » Wed Apr 10, 2013 5:56 am

U.S. government debt cannot be reconciled. The Debt itself (~$16 trillion) isn’t nearly as impossible as government pension obligations (~$24 trillion), Medicare (~$42 trillion), and Social Security (~$21 trillion). There are ~116 million American households and about half pay taxes so divide that into $103 trillion and each taxpaying household is on the hook for approximately $1.8 million dollars! The only obvious solution is inflation.

But how much inflation is needed to get your family’s tax-nut down to something payable? First off, Social Security must be “means tested” (only people who need it get it), and healthcare must be “single payer” (no for-profit intermediaries). Secondly, because America has decided it is going to have a social safety net and it needs to be paid for, that leaves a huge debt we can’t reduce, perhaps $63 trillion, which is still ~$1 million per taxpaying household spread over 75 years – about $13,000 old dollars per year (in addition to regular taxes), which is tough but negotiable, especially with tax brackets. However, that means all other future obligations will need to be reduced by 90%!

For the remaining $40 trillion debt, total inflation would have to be ~%1000 to get down to $4 trillion, meaning that every $1 in obligation would only need 10 cents of real value to cover. It’s terrible but America is clinically bankrupt and inflation is a nation’s way of declaring bankruptcy. Who gets hurt? Companies that loan money, high-end pensioners, and people with cash in the bank. Inflation is essentially a transfer of wealth from those who have money to lend (the "rich") to those who borrow (the Middle Class), while the poor are mostly unaffected. Social Security & healthcare will be indexed to inflation at sustainability levels, so those people will be mostly safe.

Many state government pensions are similarly insolvent and would be "cured" by inflation. Using the urgency such dramatic fiscal changes, fear, anxiety, and hardship would produce, the U.S. Constitution must add a Balanced Budget amendment, end unfunded borrowing, and relinquish all functions except those deemed to be in society's interests to the private sector, (dramatic reduction in government employees).

It's going to be a bitch but America will pull through.

p.s. "Hyperinflation" is defined as 50% inflation per MONTH, which would take only 6 months to exceed 1000%. It seems more likely that America will experience 50-100% inflation per YEAR for a few years. (In comparison, 1970's inflation was less than 10%.)

sources:
http://online.wsj.com/article/SB1000142 ... 87636.html
http://www.statisticbrain.com/u-s-household-statistics/
http://www.washingtonpost.com/blogs/won ... _blog.html
http://www.theatlantic.com/business/arc ... on/265644/
http://en.wikipedia.org/wiki/Hyperinflation