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On a number of blogs last week, a number of people asked what can be done. Well, the truth is the chance for fixing it - at least fixing it in a way we might find acceptable - is past. Bush, Paulson, and Bernanke, and the governments and central banks of the G-7 have already embarked upon the course they will follow over the next year to three years - they are inflating.
At least in this case, allowing the $2tn of credit to just disappear will, as you say, contract the economy substantially. When loans are deafaulted on and written off, the money they represent ceases to exist, therefore it is not necessarily a bad thing to inflate to get that money back into existence. We have met the enemy, and he is us — Pogo
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