Well, that would also assume those assets don't increase in value over time as well. Which seems a strange assumption given that prices for everything else are rising. Even if we were to accept your premise as correct - that debt will essentially evaporate because the nominal value of debt is constant - then it would act as a significant disincentive to lend money, which would stifle investment and criple the economy. If inflation were the solution, governments would just print money.Stuart* wrote: Perhaps that’s the solution for you and me, but certainly not the preferred option of central or private banks, for the reasons I stated. They effectively lose the value of their assets, rapidly.
Sure - but taxpayers are always going to foot the bill when government gets involved like this. It's just a question of whether it's today's taxpayers or those in future generations.However, Governments have now effectively underwritten all debts. It saves the banks, temporarily, but doesn’t solve the debt problem; it’s simply transfers it to a long-term lender. You and I?
If that took place, then I believe what *must* follow is a severe restriction on personal borrowing to prevent the same thing happening again. Regulation, if not partial state ownership of banks is the answer, perhaps?
Well, my view is that regulation is largely responsible for this mess. If you look at what took place in the US, Congress decided it wanted to use the financial sector as a tool for the welfare system by instructing banks to lend to low-income earners (who wouldn't ordinarily qualify for a loan). Besides that you had Fannie Mae and Freddie Mac - quasi-government institutions which were meant to be tightly regulated so as to focus on loans that private banks were unwilling to provide, but instead became powerful lobbying outfits in their own right to get favourable treatment (and in turn increase market share). Government ownership in the banking sector is hardly an appealing solution when it's been a fundamental part of the problem.
I would actually refer you back to your own earlier comment: "perhaps it’s preferable for a recession to run its course rather than try to interfere and make things worse". I actually think there's a lot of truth to that - although that's not the sort of message that appeals to politicians... or the voters.
