Politicians play with fire by risking inflation

Prices are rising, government spending is soaring, and trillions of dollars of new money appears as if by magic. It’s all intended, we’re told, to sustain the economy through the pandemic and then get individuals and businesses back on their feet as COVID-19 fears retreat. But many observers can’t help but wonder if rising prices are a sign not of a country returning to health, but of money losing its value in a world starting to suffer a renewed bout with an old enemy of prosperity: inflation.

“Unfortunately, we’ve turned our backs to inflation during the past decade, and we’re about to relearn a painful lesson about respect,” warns Connel Fullenkamp, a professor of the practice of economics at Duke University. “The Fed and the Biden administration are dismissing the latest inflation data, claiming that the jump in prices is merely temporary. Besides, they continue, it will be good to let the economy run hot for a while. In other words, don’t worry—higher inflation won’t be a big deal.” …

“The Fed-driven economy relies on the creation of trillions of dollars — literally out of thin air — that are used to purchase bonds and push money into a pandemic-ravaged economy that has long been dependent on free cash and is only growing more addicted,” Axios Markets Editor Dion Rabouin warned in December, even before economic activity picked up.

Politicians may like that addiction—addicts are dependent on their sources, after all. But, if they trigger a new round of inflation and devalue money in the process, nobody will be very happy.