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Project Syndicate/Raghuram G. Rajan/8-2-2021
“Inflation readings in the United States have shot up in recent months. Labor markets are extremely tight. In one recent survey, 46% of small-business owners said they could not find workers to fill open jobs, and a net 39% reported having increased their employees’ compensation. Yet, at the time of this writing, the yield on ten-year Treasury bonds is 1.24%, well below the ten-year breakeven inflation rate of 2.4%. At the same time, stock markets are flirting with all-time highs. Something in all this does not add up.”
USAGOLD note: The most dangerous aspect of endless quantitative easing is that governments will need to roll their debts over at higher interest rates, according to the former governor of the Bank of India. In the case of the United States, though he does not mention it, that could make interest on the national debt a major burden. Even at these historically low rates, interest payments on the national debt are projected $378 billion for 2021. (The United States, by way of contrast, spends about $715 billion on the national defense.) A doubling of the rate paid by the federal government (now 1.7%) notably would put the government’s interest payment well over what it spends on defense. More than anything, these numbers argue for continued quantitative easing, not against it.
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