SATYAJIT DAS is spot on when he says that high inflation could solve the problems with falling housing prices in US Australia and elswhere. If you reduce purchasing power of the currency, seller of goods and assets will demand more devaluated dollars for their stuff. Workers demand payrises in order to pay for the more expensive stuff. So people hoding assets do well in high inflationary times and people holding cash or fixed interest such as term deposits, bonds and debentures loose out in effect paying for the economic sins of society. Shares are affected according to companies ability to pass increased cost on the consumers.
By the way 4% is not a high inflation, in the 80's inflation was well above 10 percent and world did not come to an end. Spare a thought for Zimbabve -inflation 8000%. They just had to print new bank note with denomination 250,000 and 500,00 which is at the current exchange rate less than $A10 and $A20.
If we can keep our inflation on 4% and bring it back to 3% in a year or so I will be thanking our lucky star. My fear is that DAS is right and government around the world will use the inflation to get from the current financial predicament by devaluating the debts.
Brian
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