Can it really work that way? I mean without "inflating the debts away" ? Will US citizens pay with more valuable dollars the debts they have accumulated over the last few years?
How exactly are the US citizens going to manage servicing those debts, with interest rates rising AND the "real" value of their debts rising (as USD has become much stronger vs Euro, Yen, BP etc)? And with stagnant income, due to global wage arbitrage?
Will they become debt slaves? Will foreclosures soar?
In theory, sure it can work IN THEORY. They can deflate the housing bubble and let deflation take its course. Remember that 40% of the NFP jobs created during the last few years are real-estate related.
IF THEY PLAN TO LET IT DEFLATE, I ARGUE THEY SHOULD HAVE LEFT NATURE RUN ITS COURSE 4yr AGO, after Bubble-I. Not create the housing MegaBubble-II and wait to deflate AFTER US citizens have loaded debt to their nostrils, to buy a home at 2-3x the price it cost 5yr ago!
This way, the lenders and the banking system will be the big winners.
But you can kiss the middle class goodbye in the US (I'm pretty sure the lower class is dead anyway).
In a world of fiat currencies, governments have the ability to CHOOSE: inflation or deflation. In the end, it's a political decision.
My logic tells me that politicians always prefer inflation. Maybe with the US it's different...
