Tuesday, 15 March 2016
Wiping out the national debt is easy.
Step 1: Have the central bank print loads of money and buy back all the debt. That is, in effect, do a massive QE operation. Of course doing all that in one year would be disruptive (though not impossible). But doing it over five years wouldn’t be difficult.
Step 2: That amount of money printing would probably be too inflationary, though given the muted effect of QE, it wouldn’t be AS INFLATIONARY as some might claim.
Step 3: Thus some sort of deflationary measure would be needed to counteract the above inflation. Probably the best would be to raise taxes and extinguish the money collected.
Step 4: As long as the above inflationary and deflationary effects exactly cancel each other out, there’d be no effect on aggregate demand or numbers employed.
QED. Problem solved.