Default or Inflate? (intermediate/advanced macroeconomics)

[magus341]

The news is full of stories about Greece. Their government spending has long been out of control and now their debt is causing real problems for them. Before long, Spain, Ireland and Portugal may join them from the E.U. and Japan is not too far behind. Financial crises hit in an instant, even though they take decades to build up. When a country'

Comments

[psyllogism]

Interesting. Is the interest rate on a government's debt variable? I woulda thought it was usually fixed...

Also, I think you left "introductory territory" with this one. What's purchasing power? What's dead weight loss? I vaguely remember those things from Econ 101 five years ago. And I can't think of what MV=PY means...

What about the disadvantages of inflation? Or are those so obvious that they don't need to be mentioned ;-)

Finally, that's a very interesting point about not being able to take countries to court and liquidate their assets. I've never thought about it before, and can see how it leads to a very tough problem.

[magus341]

Sorry, I posted it halfway through. I should really explain it on my wiki page and hyperlink it in. Governments can use long term debt, but very often they are dependent on short term debt to pay off their long term debt as it comes due (taking loans to pay off loans). This essay is the coming together of a lot of other thoughts I've had, like the nature of sovereign default. I didn't mention the disadvantages of inflation because it's such a huge topic that adding it would be too long. I'll do a post about the disadvantages of inflation eventually.

[anailia]

I enjoy your stuff, thanks for writing it!