Inflation? Deflation?

Jeff Harding does a masterful job of summarizing what’s going on in the economy. He predicts that big time inflation is coming. If nothing changes, I think he’s right. But Paul Krugman and others make a good counter argument. What will happen to keep inflation at bay? One answer is taxes. Very high tax rates can support high levels of debt. It’s happened before – look at the US with it’s post World War II debt (120% of GDP) and it’s 90% marginal tax rates. Ugh. I suspect that the future is somewhere between the extremes: enough inflation to be uncomfortable and enough taxes to inhibit economic growth. In any event, it’s hard to see the overall situation getting better in the next few years. The only real solution will be to slash government spending, which mostly means slashing Medicare spending. Medicare is too popular to kill, so serious health care rationing may be in our future. That’s where I expect to see the price controls that Jeff predicts.

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