Evidence indicates that we now live in a generation where the majority of people don't fear inflation. Seems that anyone sounding alarms about inflation fits in the category of "the boy crying wolf". We have heard a lot about inflation from the old-timers.
So, who can successfully argue restraint in the midst of public outcry created by continuous media and government pronouncements about the pandemic? How can leaders be fiscally responsible and simultaneously avoid the optics of being heartless with resources under their discretion regarding those in need amidst the constant themes observed in media and social media? It comes across as a simple choice – Do we want to help people or not?
Now that we have demonstrated that the government can simply help the people by sending out money to people, it will be difficult to get the population to see the value of endeavoring through diligence and effort to produce goods and services when they clearly envision that the government can just send them money to fund their expenditures.
That said, population, resources, infrastructure, technologies, expectations, and aspirations ultimately drive economies. This pandemic didn't damage any of these categories other than immediate expectations. As the mindset shifts within a population that moves away from hysteria and our population grows with many people deciding they have been deprived too long of their wants and desires. It is predictable that they will unleash their pent-up demand and expectations that collectively we are due for something better. We have pent-up demand and the dynamics of a growing population, natural resources, productive technologies, and infrastructure, alongside the apparent embrace of powerful and benevolent collective "government" support.
Why would we not see a surge in consumption when many people are spending other people's money? What do we care about the price of something when a third party is paying for it?
The number of variables regarding inflation are too great for me to make any forecasts. However, I can predict that we are well positioned to taunt inflation with our fiscal and monetary policy until it delivers real economic pain. I believe that any forecasts that inflation will be problematic will not be accepted by this generation until they have the real experience of it. Warnings of inflation-induced pain will not be enough to resist the pursuit of a grand experiment in monetary and fiscal policy. Barb, I don't know how big is too big, but I am quite sure we are on the path that will probe this until we discover that point. We will experiment until we answer your question not with models, but real life.
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Neil Stanley
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Original Message:
Sent: 02-08-2021 16:04
From: Barb Rehm
Subject: Tuesday Topic: Stimulus, Size, and Impact
Larry Summers certainly knows how to stir a pot. The former Treasury Secretary riled up the current Treasury Secretary with a The Washington Post op ed by criticizing both the scale and scope of the Biden administration's $1.9 trillion COVID stimulus package. "Stimulus measures of the magnitude contemplated are steps into the unknown," Summers wrote, warning of "inflationary pressures of a kind we have not seen in a generation, with consequences for the value of the dollar and financial stability." But if the plan is too large, it is also too narrow, according to Summers. "If the stimulus proposal is enacted, Congress will have committed 15 percent of GDP with essentially no increase in public investment to address" the challenges of "economic injustice, slow growth and inadequate public investment in everything from infrastructure to preschool education to renewable energy."
Janet Yellen defended the administration's pandemic relief package as necessary to avoid a long, slow economic recovery and to deliver aid to people and businesses hard hit by the virus. "My predecessor has indicated that there's a chance that this will cause inflation to rise. And that's also a risk that we have to consider," Yellen said of Summers. "I've spent many years studying inflation and worrying about inflation. And I can tell you we have the tools to deal with that risk if it materializes, but we face huge economic challenge here and tremendous suffering in the country."
What do you think? Is the stimulus package so big it will trigger inflation, adding to a long list of worries for bankers?
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Barb Rehm
Senior Managing Director
IntraFi Network
Arlington VA
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