Posted on 12/24/2023 7:55:50 AM PST by millenial4freedom
I agree, but if they allowed massive deflation, you’d have a depression. Realistically, the best we can hope for is -0.5% to +1.5% inflation to keep the fed from overreacting and hope real wages grow over the next 5 years.
With QT, what should happen is that the Treasury will have to sell new bills, bonds and notes to cover the deficit. They will need about $1 trillion a year to cover QT, plus another $2 trillion for new spending. So the excess liquidity will start to run out after only a year.
The result will be rising long-term interest rates, combined with deflation and lower stock prices. Eventually, the Fed will have to stop QT. If the Fed reverts to a neutral position, that’s still $2 trillion a year in additional spending. This will start to crowd out other investments.
Now if the Fed decides to resume QE, yes, we could see inflation. But they probably wouldn’t do that unless they were faced with drastic deflation.
LBJ - Guns and Butter
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