Why inflation is needed?

The politics every day repeat their anti-inflation mantras. The statistics helps them in hiding the inflation. But let's it 11 sentences explain why politics do need inflation and why it will happen even if they can avoid it.

 At current moment governments (run by politics) are deeply indebted. The only way these loans to be repaid is by a big increase in tax revenue. As tax-increases can not bring more money (in fact often they bring less money) the only way for more tax income is the nominal increase of GDP and all money flows (salaries, prices, turnover). When we have higher nominal salaries the income tax is higher. When we have higher nominal prices, the sales taxes and VATs are higher. So that's why the inflation is needed and is happening. It just means bigger incomes agains the same old loans. Theoretically if the government could with 1 move just to raise all prices in economy, they would not need an inflation that is step-by-step technology. Just one-time change and the debt is easily repaid. This scenario sometimes happens in totalitarian states where inflation is officially banned and prices are under government control. So when the government needs lower debt/GDP ratio it just "increases" the GDP by increasing all prices in economy. In a democracy and free market where inflation is not banned, they just do it with inflation. There is no way of repaying a debt of 100% of GDP, without "increasing" the GDP somehow...

That's why, don't listen Bernanke, Obama or Draghi. Just look at the debts that must be repaid...

Dobri
April 26th 2012

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