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Originally Posted by whell
https://www.politico.com/news/magazi...-debt-00057606
Powell sounds like a big Volker fan. Volker crashed the economy to stop runaway inflation, fueling a recession that lasted through the early 80's. He got inflation under control but not after a few tough years. Powell is going to have a much tougher job.
This matters for a simple reason. When the Fed tightens the money supply and raises interest rates, it inflicts pain on U.S. taxpayers who must pay interest on the nation’s debt. The higher the debt, the higher the pain.
It was the Fed’s own experiments that helped create all this national debt in the first place. The Fed did so through an experimental program called quantitative easing, or QE. The importance of QE can’t be overstated. Under this program, the Fed created about 9 trillion new dollars between 2008 and today. (To put that in perspective, the Fed created only about $1 trillion in its first 95 years of existence. So it has printed 900 years’ worth of money in a little over 10 years, when measured against its historic rate.) All that money was injected straight into the Wall Street banking system, pumping up the very markets, like stocks and bonds, that are now threatened by the Fed’s tightening.
Years of QE and voracious spending, from Reagan to Bush to Clinton to Bush to Obama to Trump to Biden, all fueled by debt. And that debt sounds like its going to get a LOT more expensive.
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Yet inflation in the US is far lower than pretty much anywhere in Europe. In other words, it's not Biden's policies causing inflation. It's pent-up demand coming out of COVID, screwed up supply chains, and increasing energy costs attributable to the Ukraine war and Biden is handling it better than pretty much anyone else.
The U.S. recently saw some good inflation news. Falling energy costs bought down inflation for the month of July, suggesting the U.S. might be past peak inflation and the Fed may dial back slightly on a massive rate hike next month.
Europe is not so lucky. A recent report from Citi has U.K. inflation hitting 18% next January. That makes the current U.S. inflation rate of just over 8% look relatively mild. In fact, last week we heard that German producer prices were up an eye-popping 37% year-on-year. Producer prices are often more volatile than consumer prices, but for Germany, it’s a worrying trend, especially as U.S. inflation may be slowing.
The OECD has a similar view with inflation in many European countries running well ahead of North America. All European nations except France and Switzerland will see higher inflation in 2022 than the U.S. based on recent OECD estimates.
As for voracious spending,
this year’s deficit will decline by $1.7 trillion, representing the single largest decline in the federal deficit in American history, the Office of Management and Budget says. Despite the gains, the administration said Tuesday that it is forecasting a deficit of $1.03 trillion for the budget year that ends Sept. 30. That number signifies a movement away from the record deficit in 2020, which reached $3.13 trillion. So, Biden's deficit this year will be 67% less than Trump's was at its worst. Sounds like progress to me.