December 22, 2004

LAURENCE KOTLIKOFF -- get ready for the next Age of Inflation (pdf):
The United States and most of the euro-member countries are effectively bankrupt. Resolving these bankruptcies is going to be extremely painful and is likely to spell the end of the European Monetary Union .. We could, starting today, raise federal income taxes (individual and corporate) by 69 percent. Or we could, starting today, raise payroll taxes by 95 percent. Or we could immediately and permanently cut federal discretionary spending by 106 percent. Or we could immediately and permanently cut Social Security and Medicare benefits by 45 percent.... Another option is to go for a combination of smaller portions of each of these varieties of castor oil. For example, we could simultaneously raise income taxes by 17 percent, raise payroll taxes by 24 percent, cut federal purchases by 26 percent, and cut Social Security and Medicare benefits by 11 percent.... The fact that any single option or any combination of options in the menu of pain would be incredibly hard to swallow means one and only one thing. The United States is going to be printing money like crazy over the next few decades to try to 'pay' its bills.... But regardless of who exits first, the bottom line is that the euro, like the dollar, is a sinking ship. And once the financial markets wake up to the inevitability of high inflation in Europe and the United States, they will start pulling the plug on these ships by setting very high long-term interest rates. This will give the Federal Reserve and the ECB the perfect excuse to start printing money in order to lower rates, and we will be off to the races.
Kotlikoff is the co-author of The Coming Generational Storm. His web site has lots more. Posted by Greg Ransom | TrackBack