Controlled Inflation
American consumers are not only feeling good. They are feeling great. They are borrowing money – and spending it – like tomorrow will never come.
After an extended period of indulging in excessive moderation (left), the US consumer makes his innermost wishes known (right). [PT]
On Monday the Federal Reserve released its latest report of consumer credit outstanding. According to the Fed’s bean counters, U.S. consumers racked up $28 billion in new credit card debt and in new student, auto, and other non-mortgage loans in November. This amounted to an 8.8 percent increase in consumer borrowing. It also ran total outstanding consumer debt up to $3.83 trillion.
US non-mortgage consumer debt – this exercise in admirable restraint seems to have served as a template for corporations and the government. [PT] – click to enlarge.
Perhaps this consumer spending binge will finally propel price inflation, as measured by the personal consumption expenditure (PCE) deflator, up to the Fed’s elusive 2 percent target. Academic economists and central planners consider 2 percent price inflation to be the sweet spot for attaining economic heaven on earth. We have some reservations.
Controlled inflation, or what is sometimes called financial repression, is what the Fed is after. Because controlled inflation is the grease that keeps the gears of the debt based monetary system turning. You see, through controlled inflation, and the subsequent slow erosion of debt burdens, borrowers can make good on their debts with dollars of diminished value.
And, of course, the biggest debtor of all is the federal government. Controlled inflation benefits Washington more than anyone else. The government can borrow massive amounts of money and inflate its debts away. Yet this isn’t without consequences…
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