Spending & Inflation
Great piece by Michael D. Bordo and Mickey D. Levy that delves into government spending and concerns about inflation (Wall Street Journal)
Combined with the Fed’s expansive monetary policy, the government’s income supports have generated a surge in money supply and excess household savings…A few episodes from history stand out as parallels. After World War II, concerns that aggregate demand would slump and the economy would shrink led the Treasury to pressure the Fed to maintain its artificially low interest-rate pegs. Contrary to expectations, a surge of pent up household savings and massive Fed liquidity resulted in strong economic growth, and inflation—up to 15% a year by 1948.