Politico online has an interesting article yesterday entitled The Fed’ Doomsday Prophet Has A Dire Warning About Where We Are Headed. Thomas Hoenig is a retired member of the Federal Reserve who, in the early 2000s. opposed the Fed’s loose money policy and was thought at the time a crazy outlier – though events proved him largely right, so perhaps it is worth listening to him this time.
I have written before about my concern with the growing Federal debt, the willingness of both political parties to ignore the deficits in favor of buying votes with popular debt-financed programs, and about the enormous amount of “new” money the Federal Reserve has injected into the economy over the past couple of years.
There is a new theory among some economists and politicians called the “Modern Monetary Policy” which argues that government debt doesn’t really matter for nations that control their own currency; in fact that it is a good thing. A good explanation of it can be found in Stephanie Keltont’s 2021 book The Deficit Myth. Or if reading economics books isn’t your thing, there is a relatively short TED talk by her here. It is an interesting argument, but frankly I find it about as believable as the Laffer curve or Reagan’s voodoo economics. But politicians, especially on the left, love it because it justifies their expensive debt-financed Federal programs.
I try largely to stay away from short-term domestic politics in this blog and attend to things that have longer-term and more global implications. But a severe economic crisis in the US would have global geopolitical implications, so that is why I occasionally deal with these issues.
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