The Hill: Brace Yourself - Inflation's Coming Back Stronger Than Ever

Article by Alvaro Vargas Llosa in The Hill

The Federal Reserve insists that the current price inflation is “transitory.” Every sign points in the opposite direction, however, and we need to understand the economic and political implications of what is about to begin — an era of high inflation.

But that was all bound to end. A country cannot raise its debt by 40 percent in two years (as the federal government has done since 2019, according to my calculations of the Treasury Library’s monthly statements of debt) or spend more than $6 trillion in 2020 and incur a 15 percent fiscal deficit on top of years of prior profligacy, all without consequences.

Nor can the Fed spend money to buy assets, increasing its balance sheet to more than $8 trillion (up from $4.3 trillion in 2019) and not expect that money to spill out into the economy at some point. There are signs that this is already happening — and it is only the beginning. 

The dollar is still the world’s reserve currency, but it is bound to lose that status eventually — just as the British pound lost it to the dollar in the 1920s and other currencies lost their dominance before that. It is fascinating to see U.S. authorities hell-bent on encouraging the process. Why would they be so keen to facilitate the weakening of the dollar? Because it is the easiest way to lessen the consequences of too much spending and too much borrowing. There is simply no way for the U.S. government to pay what it owes — but it can inflate its way out of a big chunk of that debt.

The government calculates that as more and more baby boomers come knocking at the doors of Social Security and Medicare, sustaining the current financial arrangements and meeting its liabilities will become impossible. Inflating the debt and debasing the currency is the only solution. You can be sure the Fed will continue to characterize the inflation as “temporary” (just as other leading Western nations will) so that it can continue to inflate.

Anyone who has lived under significant inflation knows the havoc it causes. But while destroying savers and earners, inflation is a ......

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