Why the Financial Industry Hates Inflation

Dean Baker:

In principle, the Fed can offset much of the burden of the debt run up to boost the economy during the downturn by simply buying and holding it. In that case, the interest would be paid to the Fed and then refunded to the Treasury, leaving no net burden for taxpayers. The Fed could prevent this from leading to inflation when the economy recovers by raising reserve requirements. Of course most economists agree that a somewhat higher inflation rate would be desirable at the moment since it would alleviate the debt burden of consumers.
It is remarkable that this path towards dealing with the deficit has garnered so little attention. This could perhaps be explained by the fact that the Wall Street actors who are the main financiers of the anti-deficit crusade are not interested in a deficit reduction path that does not cut social spending and risks somewhat higher inflation. Higher inflation is generally anathema to the financial industry, since it devalues the debt it owns. (emphasis mine)
It is also worth noting that most people involved in the debate on economic and budget policy are not very astute observers of the economy. They were unable to see the $8 trillion housing bubble that both gave us the current downturn and the large deficits that have fixated Washington.

I've been puzzled why so many people are afraid of inflation when we are stuck in a deflationary environment.  The only driver of real inflation will be wage increases, and we won't see those anytime soon.  But since credit is near an all-time high, that burden could be mildly inflated away.  Unfortunately, commodity market reaction to QE2 has seen price inflation without wage inflation, and debts are still onerous.