Echoing my recent arguments on this subject, Dr Don Stammer writes in The Australian:
"These central banks are printing money to support bank lending, to finance budget deficits and, in Europe, to stabilise bond markets. These things are what central banks are expected to do during financial crises and, for the most part, their actions are delivering the expected short-term results...As confidence returns and credit flows start speeding up, the stock of money in the big industrialised economies will surge and create conditions highly accommodative to inflation. Moreover, governments may take the view, as they did in the late 40s (and by the US government in the 70s), that inflation is a more acceptable way of dealing with a massive overhang of public debt than tax hikes or spending cuts...
Call deposits with banks or money market funds, along with floating rate notes, can give reasonable protection so long as the Reserve Bank of Australia uses variations in the cash rate as its main way of keeping inflation under control. By contrast, conventional government bonds usually suffer a severe loss in real value when inflation surges."
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