Former Fed Governor Gets One Cause of Runaway Inflation Right

Dec. 20, 2021 (EIRNS)—In an unusual Wall Street Journal op-ed Dec. 16, Kevin Warsh, a former Federal Reserve governor in 2006-2011, accurately described the money-printing as the real cause of the current hyperinflationary threat, though he did not discuss the Green Deal disinvestment in productivity. Warsh’s headline was, “The Fed Is the Main Inflation Culprit.”

“To date, the Fed has acted as an enabler,” Warsh wrote. “The Fed bet on a new policy regime to get inflation higher. It worked. It’s not the first time a central bank wanted a little more inflation and got a lot more.

“Last year, in another break with precedent, the Fed loudly and explicitly endorsed a blowout in federal spending. Congress swiftly agreed. Federal spending increased from an average of about 21% of gross domestic product in the prior decade to more than 30% in Fiscal 2020 and 2021. National debt relative to GDP increased from 79% in 2019 to more than 100% today. Most troubling, the Fed bankrolled the fiscal profligacy, purchasing more than half of the new Treasury debt issued this year. Call it monetary dominance.

“Achieving a soft economic landing at this late stage is difficult. If the sole task were to drive inflation down, the Fed would immediately taper its asset purchases and start raising rates. But a significant tightening cycle would likely cause market volatility to surge and assets to reprice. The authorities have expressed little concern about financial excesses, bubbles or financial imbalances.”

Former Treasury Secretary Lawrence Summers’ Washington Post op-ed Dec. 16 added that day’s Fed announcements are not any sort of control over inflation, which will continue to rise. The same is true for all three announcements on Dec. 16-17, from the Fed, the ECB, and the Bank of England. Summers states that real interest rates have become deeply negative, which promotes borrowing to invest in every kind of bubble, fueling inflation.