Thursday, June 18, 2009

Expect high inflation?

Street child by henri ismail

Wars cost a lot of money.

Pensions and health care, for a greying population, cost a lot of money.

Propping up banks costs a lot of money.

Consumerism costs a lot of money.

There is a lot of debt in countries like the USA and so we can expect high inflation in certain countries, at some point in the future.

Figures from the IMF suggest that the public debt of the ten leading rich countries will rise to 114% of GDP by 2014. (Public debt: The biggest bill in history The Economist)

By 2050 a third of the rich world’s population will be over 60.

"The demographic bill is likely to be ten times bigger than the fiscal cost of the financial crisis."

(Public debt: The biggest bill in history The Economist)

"The scale of the coming indebtedness might ultimately induce governments ... to cut the real cost of their debt through high inflation." (Public debt: The biggest bill in history The Economist)

"Eye-popping deficits and the uncharted nature of today’s monetary policy, with the Federal Reserve (like the Bank of England) printing money to buy government bonds, are prompting concerns that America’s debt might eventually be inflated away." (Public debt: The biggest bill in history The Economist)

However, countries such as Russia and China do not want an immediate fall in the value of the dollar.

"Even as the leaders of the BRIC countries (Brazil, Russia, India, China) raised doubts regarding the dollar's status, the four nations increased foreign reserves by more than $60 billion in May alone, Bloomberg reported.

"These countries are interested in keeping down their own currencies to support their exports, as well as having enormous reserves in dollars - a combined total of $2.8 trillion.

"Needless to say, countries with significant dollar reserves are not interested in seeing rapid dollar devaluation anytime soon." - Greenback mountain

"Despite calls for less reliance on the Dollar, Russia and China will have to trade and keep reserves in USD for the foreseeable future says Walter Lohman, Director of The Heritage Foundation's Asian Studies Center." - Russia Today

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