Sneaking in some inflation is one plan. Over time, nominal tax revenues go up relative to debt. I think this must be Bernanke's plan. Not saying it is a good plan, but the way they eliminate war time debt is through inflation. Of course, the Fed cannot SAY that it is deliberately devaluing its currency, but actions speak louder than words. In the case of the ECB, the 2% inflation target takes away that option. Certainly Germany and those that experienced 1920s hyperinflation will fight against removing this target. So they are kind of hemmed in. When does politically unpopular become politically unviable? Bloodshed on the streets in Greece, we're getting closer I guess. Unless there is some penalty for nations that fail it is hard to see the current system surviving...when you look at the original criteria for Euro entry such as <3% fiscal deficits compared to today's levels...it becomes a joke. They have to re-write the rules. And importantly use carrot and stick to reward/punish good/bad behaviour. The sooner they realize this, the better.
On a related note: http://www.bloomberg.com/news/2011-...scuss-adopting-explicit-inflation-target.html Fed Officials Discuss Explicit Inflation Target Federal Reserve officials are discussing whether to adopt an explicit target for inflation, a strategy long advocated by Chairman Ben S. Bernanke and practiced by central banks from New Zealand to Canada, according to people familiar with the discussions. The FOMC would probably target headline inflation if it moved to an explicit goal, Meyer said. Two percent would be the most likely target, and the time period over which policy makers expect to achieve it will likely be the âmedium term,â a vague horizon that makes clear this is not a goal for a one-year period, he said.