To the FedGov, at this point, I expect it is. Paying 10% interest on $30T in debt would cost $3T per year. The FedGov only took in $3.8T in taxes last year. Then there are all the massively over-leveraged corporations out there. 10% interest rates wouldn't produce a "recession". They would produce a depression that would make the one 90 years ago look like a minor blip.
10% inflation carries its own set of problems, not the least of which is a wage-price spiral that could be every bit as destructive to business.
It was a wage price spiral back in the 70s that persuaded Volcker to push interest rates into the stratosphere. Nixon had already tried peacetime wage and price controls with no success, and by 1978 a vicious feedback loop had set in where inflation was driving wages higher, increasing labor costs, producing higher prices, forcing wages higher.
And the potential for oil price shocks as bad as those of the 1970s is high and rising higher. If Biden gets his war in Ukraine oil could spike to over $200 a barrel. Energy price inflation is already running near 50% (which is why the top-level number is so misleading as to the real impact of inflation).
China has already seen the consequences of runaway energy costs: rolling blackouts that impact business and further disrupt supply chains.
Maybe this time really is different. Maybe the Fed's planned balance sheet reductions and Quantitative Tightening will drain enough liquidity as to obviate the need for draconian interest rate hikes.
If not, the economy is headed into an extended stagflationary crisis that will be every bit as painful as the Great Depression, and lasting at least as long.
Is the cure worse than the disease? Depends on how bad the disease gets--and it could get pretty bad.
Is a wage-price spiral destructive to business? Yep. But not to government, at least not right away, whereas 10% interest rates would be. I'm not sure it matters. Either way, we're going to get a depression at some point.
"Is the cure worse than the disease?"
To the FedGov, at this point, I expect it is. Paying 10% interest on $30T in debt would cost $3T per year. The FedGov only took in $3.8T in taxes last year. Then there are all the massively over-leveraged corporations out there. 10% interest rates wouldn't produce a "recession". They would produce a depression that would make the one 90 years ago look like a minor blip.
10% inflation carries its own set of problems, not the least of which is a wage-price spiral that could be every bit as destructive to business.
It was a wage price spiral back in the 70s that persuaded Volcker to push interest rates into the stratosphere. Nixon had already tried peacetime wage and price controls with no success, and by 1978 a vicious feedback loop had set in where inflation was driving wages higher, increasing labor costs, producing higher prices, forcing wages higher.
And the potential for oil price shocks as bad as those of the 1970s is high and rising higher. If Biden gets his war in Ukraine oil could spike to over $200 a barrel. Energy price inflation is already running near 50% (which is why the top-level number is so misleading as to the real impact of inflation).
China has already seen the consequences of runaway energy costs: rolling blackouts that impact business and further disrupt supply chains.
Maybe this time really is different. Maybe the Fed's planned balance sheet reductions and Quantitative Tightening will drain enough liquidity as to obviate the need for draconian interest rate hikes.
If not, the economy is headed into an extended stagflationary crisis that will be every bit as painful as the Great Depression, and lasting at least as long.
Is the cure worse than the disease? Depends on how bad the disease gets--and it could get pretty bad.
Is a wage-price spiral destructive to business? Yep. But not to government, at least not right away, whereas 10% interest rates would be. I'm not sure it matters. Either way, we're going to get a depression at some point.
As Robert Frost speculated, the world ends in fire or in ice.
But it ends, regardless.