Inflation and Baby Boomer Moral Hazard

Check out this HuffPo piece by David Goldstein, entitled “Fuck Inflation.” It may not be the most scholarly piece on the Fed and its policies, but it is right on. Inflation is good for debtors–which is why the people in charge of the Fed hate it. (It’s bad for creditors and people who live off interest instead of income, i.e., the ruling class.)

Once upon a time, the Fed was dedicated not only to the Supply-side theory of absolute inflation containment, unleashed by Paul “Double Digit” Volcker, and was also concerned with full employment. Of course, it is not immediately apparent anymore that inflation would actually help the working/debtor class in an era so bereft of any leverage on the employee’s side. It might just mean more poverty. Somehow, though, I think if that went too far it would escalate a revolution if too many entitlement-feeling middle class folks were poverty-stricken.

What happened in the 1970s–when the middle class came to accept the War on Inflation–was what economists might call a “moral hazard.” There was a bout of serious inflation, which, in many cases, such as California, the response was a massive bailout by the state on the backs of younger generations.

Those who owned property before, say, 1975, have simultaneously seen a skyrocketing increase in their property values, coupled with cheap borrowing on that property in recent years allowing them to use their houses as banks. The rest of us have to figure out clever ways to purchase homes, such as the now infamous subprime mortgage.

It won’t take too many breakdowns like Jim Cramer’s before the nation’s financial establishment bails itself out yet again, even if it means higher taxes on the riches poseurs who rely on high incomes (as opposed to the truly wealthy who own and collect capital gains), even if it means Volck-you style austerity for a time, and, god forbid, (I believe) even if it means that they need another Democrat to come in to absorb the blame for the tax increases.

Meanwhile, most of us will keep writing our mortgage checks, waiting for the sky to fall.