Fat pensions spell doom for many cities

And here is one of the more undesirable results of inducing inflation aggressively and artificially in a system. If you’ve read this past essay, you will know that there is a limit to how much inflation can be forced into a monetary system. Once the limit is reached and you tip into deflation, one of the more pernicious problems is that governments cannot maintain the promises to and services for the public. That’s because in order to spend liberally, government must induce inflation into the system. The more you need to spend the more you need to goose inflation. Making pension promises to unions, is one way of inducing inflation. However, as attested by the velocity of money the effects of inflation diminish over time. Once money velocity approaches zero or goes below zero, no amount of monetary expansion can revive inflation.

In the absence of inflation, governments can no longer spend liberally. At the end of a fierce and artificial inflationary cycle governments find themselves saddled with huge promises they cannot hope to make good on.

Once again. Unless someone somewhere comes up with a bright idea to get inflation going again, the West is bankrupt. You know where I am going with this…

http://money.cnn.com/2008/06/02/pf/retirement/vallejo.moneymag/index.htm

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