At the risk of being called inflation scolds by Paul Krugman . . . .
The law of supply and demand is called a law because it's more than theory. It's like gravity that way. The more dollars the American government puts into circulation, the less they are eventually worth.
Printing trillions of dollars, or putting them into bank accounts electronically, will eventually lead to inflation. That is, it will take more dollars tomorrow to buy the same product you'd get today. And when that happens, and it will, all those 401(k)s won't be able to buy as much as you'd hoped.
This is a bipartisan problem with a bipartisan background. Over the last generation, Republican presidents/Congresses/voters have been no better at taming the national debt than their Democratic counterparts. They haven't even complained overmuch. But a day of reckoning is coming. As a friend said the other day, if this free spending can continue with no consequences, it will mark the first time in world history.
The news is filling up with warnings, and not just on the conservative channels. Here's a headline this week from CNN: "Jerome Powell and Janet Yellen aren't worried about inflation. Maybe they should be." And from Business Insider: "Get ready for the return of inflation." From Reuters: "Fed set to look beyond possible post-pandemic inflation shock."
Dispatches say that grocery prices rose last year at the fastest pace in decades. Used car prices are up 10 percent in the last year. Oil prices are up 10 percent in the last month. And once the country comes out from the covid-19 hibernation, demand is expected to kick-start businesses like movie theaters and restaurants. Putting inflation pressure on the demand side.
There are a great many people in the dismal science who've been quoted in the papers lately. But one of them spoke in understandable non-jargon English. Todd Lowenstein, an equity strategy executive, said to CNN: "There is a tug-of-war around inflation. Inflation could be transitory, but we need to keep an eye on the bond market due to massive federal spending."
Stimulus spending, while necessary right now, could lead to--no surprise--declines in the value of the dollar, he said. Thus inflation.
"Could inflation become entrenched?" he asked. "The Fed doesn't want to fight it right now, but historically the issue is that inflation is like toothpaste in a tube. It's impossible to put back."
Others say that once inflation gets going, it's going to go big and fast. The value of the money you're socking away this year for retirement could fall in a month. Craig Fehr, an investment type at Edward Jones, told the press this week: "Longer-term, the risks of inflation cannot be overstated. The market is expecting incredible levels of Fed stimulus for an extended period of time. If you ask me what usually keeps me up at night, it's inflation."
Whether the Treasury of the United States government--and the president(s) and the Congress--were bound to blow out the yearly budget in the midst of a pandemic and an economic shutdown isn't being much debated. To throw hungry people into the streets would have not only made the economic wreck worse, it would have been an immoral act. Try though we might, we can't find an economist who says the government should have done less this past year.
But even though government spending in such a trying time is necessary, let's not forget: Americans will have to pay this money back one day. With interest. If not us, then our children and grandchildren.
Not counting the war against the covid-19 virus, most of this debt has been amassed during peacetime. Not all of it, but most of it. As if Americans think the national credit card has no limit. And day-to-day living expenses can just be piled onto it without consequences.
Much of our debt, it should be noted, is held by other countries who'd like to bump us off as the world's only superpower. For best example: Red China. As we borrow more and more money from the ChiComs, what is to become of our economy if they decide to stop lending us money? What would happen if mainland China and the United States come to something other than rhetorical blows?
During emergencies, such as the financial panic of 2008, or the coronavirus shutdown, the government was able to come to the rescue. But what happens when it goes so deeply into debt that it can't help? Who will come to the rescue of the rescuer?
Aw, this isn't a fun subject. Inflation and interest rates and the price of things in the future is so bleak. There's a reason it's called the dismal science.
But there is a reckoning coming. And if there isn't, as our friend noted, it'll be the first time in world history.