Poorer each day
Sir: Patrick Macaskie (‘The market needs short-sellers’, 25 October) is indeed correct in suggesting that the problems caused by excessive borrowing could be solved by a round of inflation; in the same way the problem of a building having caught fire can be solved by allowing it to burn down.
As Macaskie points out inflation transfers value from saver to borrower. In the aggressive inflation of the Seventies people who had borrowed money and had employers who were able to provide inflation-linked pay rises did very well as they were able to pay off their liabilities quickly with devalued money. This course may appeal to government, since both parties at times have presided over currency devaluations which have a similar effect on the national debt.
The losers in the equation, of course, are those who are restricted to fixed incomes and do not have borrowings to offset. As the population has been ageing there is a substantial constituency of people in this category, whether holding assets in their own right or through the medium of pension funds. When such people switch on the radio each day to hear that they are another 5 per cent poorer than the day before they are unlikely to appreciate that it would be in the national interest for their remaining assets to be destroyed by inflation.
There would be a case for writing down some impossibly high loans to a level which can be reasonably repaid, notwithstanding the moral hazard, as while the lending institution would take a loss in the short term it would end with a sustainable loan book. It cannot be considered acceptable for the mass of borrowers to have their problems solved by the prudent who have saved for the future and would lose their future lifestyle in the process.
David Todd
Feltham, Middlesex
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