Hey, Let’s Give Inflation a Chance

At least temporarily, Tom Petruno tempts us with the prospect of an increase in real income (“Could Deflation Be the Next Boogeyman?” July 27). Deflation puts the brakes on a continuing erosion of personal buying power. Just when it starts to sound really good, we’re reminded that a prolonged deflation (i.e., the flip side of inflation) may lead directly to a severe recession.

Mr. Petruno should consider the cost to service the national debt. Inflation helps wipe out debt, at least in the short run. A portion of our national debt is external, financed through the sale of U.S. bonds to foreign investors, where interest payments are reduced by the rate of inflation. While this is not costless, it’s no illusion.

For simplicity, say we have a $5-trillion debt and 30% is externally financed. That’s $1.5 trillion. With a modest inflation rate of 2%, $30 billion is saved through inflation and can now be spent on domestic goods and services. Deflation would reverse the situation and result in a net reduction in domestic income. That’s a boogeyman we don’t need.

TED HOLT

Fountain Valley