Government Raising Debt by ‘Enormous Amount’ Will Cause More Inflation: Expert

Barbara Kolm, founder and director of the Austrian Economics Center, a think tank, told The Epoch Times’ “Crossroads” that the Biden administration’s massive spending plans are bound to drive inflation higher.

Asked whether she believes some economists are right to be concerned that the government’s spending plans, which now amount to some $4.5 trillion, will push prices higher, she replied that, “this will, of course, cause inflation.”

Kolm expressed concern that whatever portion of the spending involves taking on more public debt would, in particular, be a burden on future generations.

“It’s not your generation, but it might be the generation of your kids and your grandchildren, who will still have to pay that back,” she added. “This is a danger.”

Further commenting on the Biden administration’s spending plans, Kolm said their impact “is definitely raising the debt levels to an enormous amount.”

Kolm’s remarks come as senators on Sunday unveiled a nearly $1 trillion bipartisan infrastructure package, expected to be followed by a partisan $3.5 trillion social, health, and environmental plan. The bipartisan bill faces a rough road in the Democrat-controlled House, however, where progressive lawmakers have called for a bigger package.

While Biden’s $1.9 trillion COVID-19 relief package was funded with borrowed money, the president has said he wants his other spending priorities to come without increasing deficits, chiefly by tax hikes on wealthier Americans and corporations.

But according to an estimate by analysts at the nonpartisan Committee for a Responsible Federal Budget (CRFB), under President Joe Biden’s full budget proposal for fiscal year 2022 and the subsequent decade, public debt would rise from $22 trillion today to over $39 trillion by the end of 2031. In percentage terms relative to gross domestic product (GDP), the think tank estimates federal debt will reach a record 110 percent of GDP at the end of 2021, rising to 114 percent by 2024 and 117 percent by the end of 2031.

On inflation, Biden has taken the view that most of what’s behind the recent surge in prices can be attributed to “transitory effects” like surging demand grating against supply chain bottlenecks as the economy continues to emerge from the pandemic deep freeze.

At the same time, he has said that his administration would remain watchful for “unchecked inflation” and would adjust policy accordingly.

“I want to be clear: my administration understands that were we ever to experience unchecked inflation in the long term, that would pose a real challenge for our economy,” Biden told reporters at a White House press briefing on July 19. “While we’re confident that isn’t what we’re seeing today, we’re going to remain vigilant about any response that is needed.”

 

President Joe Biden speaks about the nation’s economic recovery amid the COVID-19 pandemic in the State Dining Room of the White House in Washington, D.C., on July 19, 2021. (Drew Angerer/Getty Images)

But while officials at the Federal Reserve have, like Biden, taken the view that inflation will pass once the pandemic-related disruptions wane, some economists have raised the alarm on the pace of rising prices. These have been echoed by Republicans, who blame the Biden administration’s spending policies and plans for pushing prices higher.

It comes as a key inflation gauge, the so-called core personal consumption expenditures (PCE) price index, which excludes food and energy and is the Fed’s preferred method for measuring inflation, rose 3.5 percent in the 12 months to June, the Commerce Department said on Friday. The last time the core PCE inflation gauge saw a similar year-over-year vault was in July 1991.

The Fed looks to core PCE as the key inflation gauge that informs its monetary policy, which has an inflation target of a longer-run average of 2 percent.

Some economists have expressed concerns that if prices accelerate too fast and stay high for too long, expectations of further price increases will take hold, driving up demand for wages and potentially triggering the kind of wage-price spiral that plagued the economy in the 1970s.

Meanwhile, more than 80 percent of Americans are concerned about inflation, according to a survey by Skynova, which also indicated that 61 percent feel inflation will negatively impact their lifestyles.


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