Inflation as a Fiscal Limit

A paper released at the same Jackson Hole, Wyoming, summit where Fed Chair Jerome Powell recently spoke makes the case that federal government spending needs to come down in order that Federal Reserve policy can do its job in bringing down our current high inflation.

The central bank can’t do the job itself and could even make the matters worse with rate hikes.

The paper's conclusion about the impacts of the current fiscal policies on inflation:

they ... contributed to the surge in fiscal inflation. Increasing rates, by itself,
would not have prevented the recent surge in inflation, given that a large part of the increase was due to a change in the perceived policy mix. In fact, increasing rates without the appropriate fiscal backing could
result in fiscal stagflation.

Where will Biden Administration and the Democratic congress cut spending? Does anyone know of any pending legislation proposing such cuts? I'd love to read it.

The link to the paper is here:
https://www.kansascityfed.org/Jackson%20Hole/documents/9037/JH_Paper_Bianchi.pdf

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DallasCowboysFan · 61-69, M

It won't be anytime soon. The midterm elections are just a few weeks away.
And then they have to prep for the presidential election, spending more money.
They have no intention of reducing spending or paying it back,
They are going to inflate us out of debt with devalued dollars.

irishmolly72 · 56-60, F

@DallasCowboysFan At least football season is starting.

whowasthatmaskedman · 70-79, M

@DallasCowboysFan They already tried that, and all the other major currencies matched them by printing money at the same rate and holding parity, which was what got us where we are today. Next time they try the same trick, the Chinese will push to replace the $US as the reserve trading currency with their own and leave the dollar as relevent to the global economy as the Philipino Peso.. That will have the Value of the $ within a year, which wouldnt be so terrible if America exported much at all.😷

DallasCowboysFan · 61-69, M

@whowasthatmaskedman The Chinese are bluffing. Their currency is controlled by the CCP. They set the exchange rate not the free market. They keep shutting down cities for Covid...and their economy is suffering. They started demolishing ghost cities, buildings built during boom times and now they are vacant. They have a real estate problem that dwarfs the one we had in 2008. The U.S. has an open society , not so much for China. They also control people leaving the country and the currency that they can export, either thru the internet or physically carrying it. It will be decades before people have confidence in the Chinese yuan or remnibi, before it challenges the U.S. It won't be a reserve currency anytime soon.

P.S. Some people are suggesting that the cities that they have shut down recently (for Covid) were done as a cover. They are requiring some companies to stop manufacturing goods for the civilian market and transition to manufacturing for the military defense sector. China's learning from Russia's recent mistakes with Ukraine and they are stockpiling and prepping for the invasion of Taiwan.

DallasCowboysFan · 61-69, M

@irishmolly72 I hope the Cowboys make it to the playoffs. They had a pretty good year last season. They were 12-5, but they lost the first game of the playoffs.

whowasthatmaskedman · 70-79, M

@DallasCowboysFan Actually, your comments about currency are quite correct. Just not relevent. In fact a centralized, government managed currency actually gives China an edge for this. As a major trader they can claim the right to buy and sell in any currency they want. In fact they are already using their trading power to purchase raw materials in their own currency. No $US required. Setting their exchange rate then becomes part of the price setting process. Its the fact that the US currency used to be backed by gold that make it stable. Now its just convention and the idea that the US was a trading powerhouse, .. But now it is more of an importing powerhouse, except for food. (Like a lot of third world countries...No offence, but its a fact)
But to follow that same line the other way. China doesnt need to become the Reserve trader Currency owner. They simply have to remove America from that spot. Right now America sits on the border of every trade that goes on in the world. Buying and selling $US and taking a small commission on each sale for nothing. Just like a stock broker charging brokerage, whether the trade makes a profit or not. Without that income, the value of the $US will plummet. And as I said, that process has already started.
As for Chinese cities being locked down. I dont have an opinion. But sounds a little like conspiracy theory to me.😷