You just defined exactly how an exponential process works.
>>> a = 1
>>> for i in range(1, 50):
... print a
... a = a * 1.2
Yes, clearly. My point is more that people are implicitly thinking that this is going to go the way of a typical debt/bond crises, but there's no mechanism for that in a modern fiat nation that's simply willing to print to buy it's own bonds. You don't get investors suddenly demanding higher rates (because guess who the "investor" is?), which is why the 3rd-world style sudden collapses happen.
Obviously even 0.00001% inflation could not go on forever. But <10% could go on for quite some time (yeah, I know I used 20% in my extreme thought experiment - sorry). Too many people look at the debt situation and predict collapse in the next couple years (or by 2020, or what have you). My point is that this is because they're failing to realize how insidious the dynamics of QE really are. Don't get me wrong - a major restructuring must happen - but it'll probably be another couple generations.
Nobody can tell the investors to demand low rates or high rates. What they do, depends on the total situation as seen from the insvestors, including the words from the inflators.
Investors are you and me. Institutions are only collectives, ultimately controlled by you and me. If you and me don't save in a pension fund, it will have to disappear. If you and me regard company bonds as risky, their rate will go up.
There is nothing in the current global situation where we can draw upon experience from earlier times. We are in experimental territory. Mainstream economists say this, including the central bankers themselves. Experiment and forceful action.
According to the Austrians (yes, sue me), the manipulation of interest rate leads to malinvestments and reduced economic output. The longer it goes on, the worse.
Nobody knows when problems occur, or even what the bubbles are. But as soon as investors starts to distrust the bonds, the rates will go up. If people stops depositing in banks, there will be a sharp decrease in money supply, which will be met with more printing. When users of money starts to distrust the fiat, they will try to convert it to real goods as soon as possible, and price increases will start.
When it starts, there is nothing anybody can do.
Poll
