Inflation would be an interesting challenge, if it were just a model experiment.

Ryan Rappa thinks the Fed is going to have to make debt relief part of any plan to control inflation.  Actually, I should specify that whoever wrote his commentary’s headline thinks that, because Rappa’s essay mainly just ruminates about the problem.  The closest he comes is this:

This risk is multiplied by other forms of debt, including mortgages, car loans, student loans, municipal and corporate debt, and financial leverage. Altogether, the total is in the ballpark of $100 trillion, much of which needs to be rolled over or refinanced on a regular basis, just like the federal debt. At least $2 trillion of this belongs to “zombie companies” that cannot make ends meet without borrowing more at ultra-low rates, and there are many near-zombie companies yet to come out of the woodwork.

As a result, the Fed has largely lost control of its most powerful tool against inflation. Yes, it plans to raise rates in 2022, but given the size of our collective debt, each minuscule bump is like trying to fix an electrical outlet with the power turned on.

I’m not so sure this is really a problem so much as a consideration to factor in.  Massive debt and the interest payments thereto could mean smaller adjustments to interest will have bigger effects.

Naturally, there will be pain, but ultimately, there is no solution if people don’t insist on change, so motivating them could be part of a longer term solution, while ameliorating their experience could produce short-term fixes.

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