And there’s the ballooning U.S. government debt, which some expect to reach 77 per cent of GDP by the end of the decade. Could the U.S. government, with the help of the Fed, start printing money to pay off its debt and fuel inflation? It’s been done before, says Hoenig, who points to the extreme measures of the last few years and the political difficulties associated with other debt-fighting measures such as raising taxes. “I ask your indulgence in reminding all that the unthinkable becomes possible when the economy is under severe stress.”
As a result, all eyes are now on the U.S. government’s recession exit strategy. Under normal circumstances, the playbook would call for a gradual raising of interest rates once the employment picture stabilizes and the economy is safely back on track. But that could all get thrown out the window if inflation runs rampant. In the meantime, shell-shocked working families are forced to ponder the possibility that their bank accounts, emptied during the dark days of the recession, could now just as easily end up being ravaged by the recovery.
