Inflation is a damnedable thing. It is both the devil and an angel simultaneously. It clearly damages the poor without a cushion of interest-earning savings, the elders living on a fixed income and companies without pricing power. But it benefits those with large debts at a fixed rate of interest ... like mortgage holders and governments burdened with big debts with long maturities at relatively low rates.
Like today, a surfeit of money in the United States does not necessarily create inflation ... particularly if labor is not in short supply. Although it appears on the surface that we currently have a low unemployment rate, this number is misleading due to a very large number of those not looking for work. And the influx of H1-b immigrants also keeps high tech salary growth down. Therefore employment cost pressure is currently low. However, if President Trump can cause an economic boom for middle America and slow down H1-b immigration, there well could be a shortage of blue-collar and white-collar workers ... resulting real wage pressure ... and overall inflation well beyond the Federal Reserve Bank's goal of 2%.
Once this beast inflation is set loose, vicious feedback will kick in and it won't want to stop at 2%.
Add to this a trillion dollars of infrastructure spending certainly will increase our national debt and inflation. If Trump follows through with his pledge to lengthen the maturity of our national indebtedness, we might be able to inflate our way out of our current fiscal insanity ... like we did after World War II when we let inflation cure our huge debt burden,
So here are my current inflation predictions under Trump.... particularly if he serves two terms:
- Spend like mad on infrastructure, health care and rebuilding our military
- Extend the maturities of our then fast-growing national debt .. maybe even longer than thirty years ... hopefully at relatively low rates
- Put pressure on the Fed to let inflation run ... possibly into the high single digits which will monetize this debt
- But still, longer term, try to bring government spending more in line with increased tax revenues generated by a booming economy
Is this all good? What other choices do we have?
2 comments:
Too bad Trump won't be in the oval office long enough to enact any of this.
To put out a fire in your hair ... douse your head under the water faucet ...
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