For years governments and central banks have employed quantitive easing or stimulus to inflate assets and calm nervous investors. It appears that record-low interest rates are finally spurring real inflation, at least in real estate, stocks, and other assets. As the printing presses roll, almost everyone believes inflation risk is real and forthcoming.
Larry Summers on Inflation Risk and Rising Tension at the Fed
Former U.S. Treasury Secretary Larry Summers cautions against dismissing concerns that the economy could overheat in a recent interview with Bloomberg Markets and Finance. He also warns of rising tension between Federal Reserve Chairman Powell’s statements around keeping rates low while maintaining price stability.
“I think it’s better to have stimulus than not to have stimulus. But, I think there is enormous risk we are running…”
“We are either going to have inflation, or we’re going to have a collision between fiscal and monetary policy to contain inflation of a kind that usually doesn’t end well.”
Larry Summers Knows About Deficit Spending and Inflation Threat
Summers has been around a long time, serving as senior U.S. Treasury Department official throughout President Clinton’s administration and former director of the National Economic Council for President Obama (2009–2010). He knows a thing or two about stimulus and deficit spending, but today’s environment seems to have him a bit uneasy.
Summers cites concern over the scale of what we are doing and the Fed’s somewhat reckless or overly dovish stance.
“The Fed with its foot on the accelerator to the floor, and saying that it’s going to stay that way for a very long time. And be pulled up without warning.”
Summers again, sounding the alarm on inflation risks, stating,
“I don’t think anyone should be certain of any kind of inflation forecasts. But, I think on risk analysis grounds, we certainly shouldn’t be dismissive of the risks of inflation at this point…”
“I’m concerned that we are having a dynamic that is in many ways reminiscent to the 1960s, when conflicting demands, great social concern, led well-intentioned officials, terribly dedicated, serious and thoughtful officials, to be too optimistic about what the economy could handle. And let things get away from them. And inflation went from 2% in 1966 to 6% in 1969 before there were any supply shocks. And it seems to be that we are at risk of making that kind of mistake again.”
National Debt Poised to Eclipse $28 Trillion
With the U.S. national debt set to exceed $28 trillion later this month, some politicians are very concerned. With Biden’s $1.9 trillion stimulus bill set to pass as early as this week, it’s worth noting just how much debt the U.S. is stacking up.
In The U.S. owes India $216 billion as American debt soars to $29 trillion: Lawmaker, one Congressmen shares his concern:
“Congressmen Mooney said that things have gone completely out of control. The Congressional Budget Office estimates an additional USD 104 trillion will be added by 2050. The Congressional Budget Office forecasted debt would rise 200 per cent.
“Today, as I stand here right now, we have USD 27.9 trillion in national debt…That is actually a little more than USD 84,000 of debt to every American citizen right here Today,” Mooney said.”
The two things working against inflation are the retiring baby boomers (about 10,000 retire every day in the U.S. alone), the historic low velocity of money, and the fact that the U.S. can print its currency and is the world reserve currency. Finally, while I’ve written about each of these topics separately, together, they continue to keep consumer price inflation in check, for now. Inflation risk is real, and we will continue to see it in real estate and other hot assets as investors seek out yield in a zero interest rate environment.