We would be left with no alleviation of outstanding debt, and ultimately with lower growth as we witnessed during the Great Inflation of the 1970s. The now classic work on time inconsistency clearly points to the permanent and substantial costs of the loss of credibility once inflation and inflation expectations cease to be anchored. 2. Living with the debt?
What about the option of “living with the debt”? Some have suggested to ignore existing financial imbalances “for the time being” and focus only on the short term. Rather than pressing on with the deleveraging process, more spending could be encouraged to sustain growth in the short term. 4  See Brunnermeier (2009).