It is complicated, but don’t worry, we have the Federal Reserve. It will keep the country from going into bankruptcy if it has to make paupers out of all us and make the currency next to worthless. It’ll be fine.
To complicate this mess, the stock market is overvalued and pension funds are highly invested in this mess. I am not going to get into a bunch of technical explanations as there are many places to go to get all sorts of prognostications, some as good, if not a hair better than Nostradamus. It is worth trying to explain one thing about inflation that may seem obvious but until put in the perspective of government spending and debt, it may elude the typical citizen.
Inflation makes things cost more, if something costs one dollar today and inflation is high, it may cost a buck and a quarter in a couple of years. The same is true with money. The same dollar in 2025 will pay off $1.25 in 2022 debt (or more). The higher inflation the more debt it will pay off. Obviously, this is a simplified example, but the mechanics are real. The Fed, Congress and the Executive Branch may say publicly they are concerned about inflation, but in reality, it is a necessary evil. It needs inflation as a way to buy its way out of its overleveraged position.
The Fed is happy to oblige.
Some folks have suggested the Fed can QE infinity its way out of the inflation problem. It did it in 2009 when all that mess happened (thank you again Mr. Summer and Mr. Geithner), but this time is much different. Back in the years leading up to 09, a box of crackerjack and a pulse would get you a mortgage, or three, but while the system is still very broken, the mortgage process has improved.
Now it is different.
Printing a bunch more money will simply add to the inflation problem so it becomes a balance for the Fed. How much money can they print or how much inflation can they cause before the folks in the U.S. scream for their heads. Since they are appointed by both sides of the aisle, it can go on for some time. If they can keep the “kept” population (those on the dole) quiet, or at least to a low rumble, and push some wage inflation (not enough to make any headway against inflation, but at least to deflect damage, or at least make it less noticeable), it may be able to keep it up for a while. It will be useful to have other scapegoats. What, or who, will follow Covid and Putin or will it be a repeating theme?
The problem is Congress will not help. Neither side of the aisle will curb spending, so until Congress grows the proverbial pair or the Fed lets inflation soar and the dollar crumble, the balloon will continue to inflate until it won’t matter what the Fed, or Congress does. At some point, and I would have bet good money it would have happened before we hit the thirty trillion mark – and would have been wrong, the fiscal bubble will pop. When that happens, that wheelbarrow full of money to buy a loaf of bread may become a reality. But only as a euphemism. At that point fiscal policy will convert to the barter system, or worse, despotism.
It will be less complicated.