Are we in a depression yet? The number of Americans living on food stamps has risen to 37 million. Food stamps are the soup lines of the ’00s.

And what else was big in the ’30s? Escapist movies. Here’s a headline for you:

“Box office takings set to smash records,” says The Financial Times. What kind of movies? End of the world catastrophes…vampires…strange non-humans doing strange things. For example, there are ads for Avatar all over Europe. The film seems to concern Spock-like creatures that use bows and arrows. Pure escapism, in other words.

Stocks went down a bit in America yesterday. The commentariat blamed it on higher producer prices, thought to be harbingers of consumer price inflation.

Of course, consumer price inflation is what everyone is counting on. The debts of the past need to be reckoned with. Borrowers are doing the best they can. They pay when they’ve got the money. They default when they don’t. Since ’07, mortgage debt is down about 2% – to about $10 trillion. Most of that decline comes as a result of defaults and foreclosures.

Let’s see, 2% over 2 years ain’t very much. At that rate, it will take half a century to bring mortgage debt down to the comfortable levels of the ’80s. What’s more, it will be hard to do at all. Incomes are stagnant…or actually falling. As people cut back on their spending in order to pay down debt, it reduces income to employers which has as a consequence a weaker economy…with fewer jobs and less income to the folks who are trying to pay off debt.

What a drag! People ran up huge debts believing that they would never actually have to pay them. They figured they would refinance, and pocket the built-up “equity.” But, according to a report in this week’s press, though mortgage rates are at a multi-generational low, finding a banker willing to lend is as hard as finding a liquor store that makes home delivery on Sunday. That’s largely because the equity most homeowners have is negative. Houses are down about 30% since ’07. Any buyer who bought or refinanced a house in the last 4 or 5 years is likely to be underwater.

Even in normal circumstances paying off debt is a long, hard process. Mortgage debt is long-term. Paying it off is long-term too. Many people see years of painful scrimping and saving ahead of them.

What they would all appreciate is a little help from inflation. Inflation lightens the load. It increases nominal incomes while holding mortgage payments steady. It increases nominal ‘equity’ too. House prices tracked inflation for a hundred years. It was only in the last ten years or so that they went crazy. So, if the feds could gin up a little more inflation…it might cause house prices to rise again…and almost all Americans would breathe a sigh of relief.

Of course, no one would be more appreciative than the world’s biggest debtor – the US government itself. Inflation would boost tax revenues. It would also cut the real costs of the feds’ many obligations. Most important, it could pay off that $3 trillion it borrowed in 2009 with $3 trillion worth of cheaper dollars in, say, 2015.

There are only two little hitches.

First, the feds can’t really control inflation. Aiming for a little, they may get a lot more than they bargained for. That’s supposedly why stocks went down yesterday. As soon as inflation begins to show itself, investors expect the Fed to take action to control it. That will mean higher interest rates…which should take the starch out of this ‘recovery’ tout de suite. On the other hand, there’s also the possibility that all that cash and credit piling up on the sidelines will suddenly want to get into the game. Prices could rise much faster than the feds would like. John Williams of ShadowStats predicts that hyperinflation will soon arrive in the US. Perhaps he is right.

Second, even if they could conjure up inflation, their hands are tied. Did you read the headline in The Wall Street Journal yesterday? Well, you didn’t need to. We read it for you.

“Markets force Greek promise to slash deficit.”

The Greeks are running a big deficit. About 13%…about the same as the US. Investors are afraid the Greeks will soon get in the same position as Dubai, unable to continue paying their debts. So, they’re selling Greek paper…making it more expensive for the Greeks to raise money to cover their deficits.

At first, the Greek reaction was defiance. The top man announced to the world that he wasn’t going to cut spending – not with anarchist mobs in the streets and retirees demanding more benefits at home. But then, the very next day, he must have realized that he was running out of room to maneuver. The Greeks decided to retreat. They need to finance their deficits somehow. To do so, they must convince lenders that they have things under control.

Is the US so different? The sums are larger, but the logic is the same. America runs huge deficits…$1 trillion – $2 trillion per year, as far as the eye can see. In order to finance those deficits it needs the cooperation of lenders. The US must assure them that it will not let inflation undermine their credits. Otherwise, they will sell Treasury debt…force up interest rates…and make things even harder on US debtors. Then, we will see another headline in the WSJ:

“Markets force Obama promise to slash deficit.”

Bernanke may talk of dropping money from helicopters. But he can’t do it. The man’s theory is stupid. It is also impossible to apply when you need it.

Bill Bonner is the President of Agora Publishing. For more on Bill Bonner, visit The Daily Reckoning.