A License to Print Money 3

A little while back I expressed disappointment that Paul Krugman seemed to hold back from an obvious conclusion that printing money was the sensible course of action given the current economic predicament (weak overall demand, high private debt levels).

So it is good to see that he stuck his nose out a little further on this topic while I was away.

Says Krugman,

"In the end, I’d argue, what must happen is an effective default on a significant part of debt, one way or another. The default could be implicit, via a period of moderate inflation that reduces the real burden of debt; that’s how World War II cured the depression. Or, if not, we could see a gradual, painful process of individual defaults and bankruptcies, which ends up reducing overall debt."

It's also reassuring to see that, since I wrote this post summarizing my thoughts on the economic situation in mid-2009, the views of notable economists I respect (such as Paul Krugman) seem to be coming around much more to the view I articulated at that time - in particular that we either need to inflate or default in order to reset our debt to a much lower level. Or maybe they knew this all along and are just now becoming willing to spell it out clearly - either way, it seems like progress to me.