More voices are warning that the federal government’s spending orgy, coupled with the Federal Reserve’s aggressive interference in the markets will end both in tears, and recession.

Via RealClear Markets comes a research paper from Deutsche Bank that says the times, they are ‘a changing. But not necessarily for the good:

…we are no longer sure how much of what we thought we understood about financial and macro-economics is still valid. We have lived through a decade of extraordinary and unconventional monetary stimulus to prevent economies from sliding into deflation, but this effort barely succeeded in propping up growth at what have been historically low levels.

The most immediate manifestation of the shift in macro policy is that the fear of inflation, and of rising levels of government debt, that shaped a generation of policymakers is receding. Replacing it is the perspective that economic policy should now concentrate on broader social goals.

Achieving broad social goals through the blunt instrument of interest rate policy would be a neat trick…if it worked. What Federal Reserve interventions over the last decade and more have created is even greater inequality and enormous distortions in markets across the globe.

But still we plunge on. And the farther the Fed and the feds go, the more real the possibility they will lead is into a roaring inflationary spiral:

Even if some of the transitory inflation ebbs away, we believe price growth will regain significant momentum as the economy overheats in 2022. Yet we worry that in its new inflation averaging framework, the Fed will be too slow to damp the rising inflation pressures effectively.

The consequence of delay will be greater disruption of economic and financial activity than would be otherwise be the case when the Fed does finally act. In turn, this could create a significant recession and set off a chain of financial distress around the world, particularly in emerging markets.

History is not on the side of the Fed. In recent memory, the central bank has not succeeded in achieving a soft landing when implementing a monetary tightening when inflation has been above 4%.

Policymakers are about to enter a far more difficult world than they have seen for several decades.

The paper is worth reading in full. It’s a sober take on how the policies of the Reagan years that tamed inflation and delivered a generation of prosperity have been mostly abandoned — replaced with central bank conceit.