Article from For Liberty by Norm Leahy.
The federal government will run its first multi-trillion dollar deficit this year, due largely to massive spending on coronavirus relief, and also in part due to a decades-old spending addiction.
But should we be worried that these newer, bigger deficits will lead to galloping inflation? After all, inflation was relatively tame (according to government yardsticks) in the years following the Great Recession.Â
Anthony Davies and James Harrigan write that inflation could be in our future – because not even the Federal Reserve, they say, can violate the laws of economics forever:
…if recent history is any guide, multi-trillion-dollar deficits will also become the new normal. And the funding required to support that level of borrowing will require the Federal Reserve to monetize the deficit, at least partially, by increasing the money supply.
The new normal will have the Federal Reserve printing money to pay for Washington’s runaway spending. And, sooner or later, that will give us sustained and significant inflation. The time to fix this problem passed a decade ago. We’re about to enter the final stages of our government’s fiscal life.
Since the invention of money, this has happened to all of the world’s super economies, and many of the minor ones: Rome, Spain, Germany, the United Kingdom, and next, the US. In every case, the outcome was the same—the country’s currency became less attractive as a reserve currency, and the country’s economic prominence faded. In every case, the fault traces to a single source—the inability of politicians to constrain government.
That’s a grim prediction – and also one that should prod politicians of all stripes and parties to put aside their squabbling long enough to tame spending. Just don’t hold your breath waiting for either to happen.
Image Credit:Â By Jericho [CC BY 3.0 (http://creativecommons.org/licenses/by/3.0)], via Wikimedia Commons
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Thanks for the unfounded Doom and Gloom!
Contrary to Mr Penney, I agree with Mr Leahy. If the government prints the “money” to pay for its spending, there will be more money in circulation and hence a devaluation of the dollar (inflation). If we borrow, increase our debt, we owe interest on that money and since our tax dollars are going to pay interest we can’t use those tax dollars for goods and services —– including welfare like EBT as well as police services and education for our kids and military spending to protect our nation and the list goes on. Just like the family or individual that refuses to control spending has to pay the piper in the end, so does a nation. There is no free ride.
We are headed straight toward what Germany did in the early 1920’s. They printed so much fiat paper money (today digital money is no different) that a postage stamp would cost you a billion Marks and housewives were burning the worthless paper money in their cook stoves, it was cheaper to do than buying coal. In recent years, Zimbabwe fell into the same fiscal hole and has issued one trillion dollar bills that won’t buy a cup of coffee.
We need to put a ceiling on inflation. No matter if it’s against all laws to do so.
Simply as the economy recovers the interest rates must go up, this will have a shrinking effect on the money supply. Yes, the economy will slow. The Fed’s will have to keep a close watch and increase interest rates slowly to prevent inflation.