A winding path to inflation

A winding path to inflation ( The Economist June 5^th 2010, p82)

 

1. Inflation is hard to create
   
   1. Fiscal Policy Problem
      
      1. It requires aggregate demand to return to, and exceed, potential demand compared with potential GDP. But it is difficult
         
   2. Monetary Policy Problem
      
      1. Short-term interest rates already below 1%.
         
2. Even if inlfation could be created, Government Debt is hard to be reduced.
   
   1. The greatest long-term fiscal threat comes from unfunded retiree benefits
      
      1. which by their nature are indexed to inflation
         
   2. The Maturity profile of most countries' marketable government debt is relatively short
      
      1. over half of America's and more that 40% of that of Germany, France and Italy matures within 3 years. Britian, at 20%, is the exception.
         
   3. Overcome the political and economic consensus for low inflation
      

dislodge