Magazine article The Spectator

Poorer Each Day

Magazine article The Spectator

Poorer Each Day

Article excerpt

Sir: Patrick Macaskie ('The market needs short-sellers', 25 October) is indeed correct in suggesting that the problems caused by excessive borrowing could be solved by a round of inflation; in the same way the problem of a building having caught fire can be solved by allowing it to burn down.

As Macaskie points out inflation transfers value from saver to borrower. In the aggressive inflation of the Seventies people who had borrowed money and had employers who were able to provide inflation-linked pay rises did very well as they were able to pay off their liabilities quickly with devalued money. This course may appeal to government, since both parties at times have presided over currency devaluations which have a similar effect on the national debt.

The losers in the equation, of course, are those who are restricted to fixed incomes and do not have borrowings to offset. As the population has been ageing there is a substantial constituency of people in this category, whether holding assets in their own right or through the medium of pension funds. …

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