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Satyajit Das: Dead Hand of Economics

The real issue about inflation, however measured, is its use as a policy tool. The popular economic narrative assumes that inflation is an outcome of economic activity. In reality, it is a key weapon in policy maker’s armoury. Throughout history, governments have used inflation to wipe out excessive debt, a practice that is now central to the policy of the Bernanke Fed to reduce systemic leverage. Mr. Whalen, a former banker and co-founder of Institutional Risk Analytics, provides an interesting history of inflation in the US. His objective is to use the past to seek insights into the 2008 financial crisis. Highly opinionated, “Inflated” uses a series of episodes of American economic history to outline the work’s central thesis – the US has traditionally financed its economic objectives through debt, governmental, corporate and personal, using periodic bouts of inflation to manage its leverage. A phenomenon that Mr. Whalen argues is driven by “a national agenda and standard of living that is beyond our current income” and one which is at odds with American’s self image as “reasonably prudent and sober people.” The book is strongest in some of the earlier chapters when it covers debate about a national bank in the late 18th and early 19th centuries, the issuance of paper money to finance the Union effort during the Civil War and the panic of 1893 and 1907.

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