Hi dig,
"Inflation is a means to devalue or unwind debt." I'd phrase it slightly differently, but yes, some inflation would be desirable as it would have the effect of reducing the money value of the principal of the debt burden. Meanwhile, hard assets like houses would remain just about as valuable relative to the economy as they would otherwise. So a bit of inflation would likely be a good thing as it would relieve the historical debt burden.
If only it was easy to achieve. Look at 10 year Treasury Bond rates and you'll see that the expectation is that inflation is and will remain stubbornly low. Indeed, it looks to me as if long term deflation is the best guess amongst bond holders at present. Think lost decade, at best.
Certainly over longer periods, a country can relieve the value of its debts by gradually eroding the value of the principal. This becomes necessary only when the debt burden is not sustainable.
I think that as private sector investment returns, there will likely be a fairly long period of higher inflation. Not sure when that occurs against Republican intransigence. Again, the politics suggests a long period of muddled and even harmful policy.
For myself, I think the right wing is employing the arguments which may be appropriate for a high inflation economy. But they have the wrong disease in mind. We're in a deflationary environment. 1980s tools were appropriate to 1980s problems. A high inflation environment is not the same thing as a depression and responds to different stimuli.
The tools used to defeat high inflation (government belt-tightening, restrained money supply etc) are different from the ones used to cure deflation (infrastrusture expansion, loose money supply etc). Thus right wing predictions of hyperinflation resulting from QE in a depressed environment always turn out to be wrong. Austerity fails everywhere it is tried. Unfortunately, no amount of evidence from QE1 and QE2 and countries like the UK can convince them of this.
This is alea's jellyfish economics 101.
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