Recession. Need inflation. Onion to the rescue.

In his column in the NY Times, Harvard's Greg Mankiw argues that inflation can help us out. He writes:

Suppose that, looking ahead, the Fed commits itself to producing significant inflation. In this case, while nominal interest rates could remain at zero, real interest rates — interest rates measured in purchasing power — could become negative. If people were confident that they could repay their zero-interest loans in devalued dollars, they would have significant incentive to borrow and spend.
Having the central bank embrace inflation would shock economists and Fed watchers who view price stability as the foremost goal of monetary policy. But there are worse things than inflation. And guess what? We have them today. A little more inflation might be preferable to rising unemployment or a series of fiscal measures that pile on debt bequeathed to future generations.

Krugman says that he provided such an argument in the Japanese context a decade ago. In other words, he tells Makiw, "hey, I have a Nobel!" And then Krugman writes that:

Since that was the answer I arrived at for Japan more than a decade ago, I have to say that it makes sense in principle.
But here’s why it won’t work now, at least not yet: we’re talking about making a credible commitment to fairly high inflation over the medium term, yet you still have distinguished central bankers appalled at the Fed’s 2 percent inflation target.

But, you know who has the best answer of all? The Onion. These people have a brilliant idea to add value to the pieces of paper that we refer to as American currency:


Treasury Department Issues Emergency Recall Of All US Dollars