The AP is reporting that the Congressional Budget Office will
project a $1.2 trillion annual deficit for 2009, more than double
the $455 billion record set last year. Yesterday, Barack Obama
predicted "trillion-dollar deficits for years to come." I
really wonder when we're going to start having a serious national
debate about inflation. When the Federal Reserve decided to lower
interest rates to near zero last month, the FOMC
statement said that, "In light of the declines in the prices
of energy and other commodities and the weaker prospects for
economic activity, the Committee expects inflation to moderate
further in coming quarters." In their judgment, the main focus
should be on jump-starting the economy, and they'll deal with
price stability down the road if they need to. But when the
government is simultaneously employing expansionary monetary and
fiscal policy, issuing an unprecedented level of debt, and
introducing more and more government programs without any plans
to pay for them, it will have to print a massive amount of money,
and I have a difficult time seeing how serious inflation can be
avoided. And historically, inflation has often proved harder to
lick than a simple economic downturn. Most recently, we had
stagflation in the 1970s, and Paul Volker had to choke us into a
major recession in the early 1980s to get inflation under control
before the Reagan tax cuts kicked in and the economy was off to
the races. People may make counterarguments as to whay we
shouldn't be worried about inflation, but given the potential
consequences, it should be a part of the conversation.
