Allan Meltzer, one of the country’s foremost economic scholars, says another economic storm is brewing.
“The United States is headed toward a new financial crisis,” he writes in The Wall Street Journal.
It’s the massive monetary and fiscal stimulus that could do us in, says the Carnegie Mellon professor.
“History gives many examples of countries with high actual and expected money growth, unsustainable budget deficits, and a currency expected to depreciate,” he explains.
“Unless these countries made massive policy changes, they ended in crisis. We will escape only if we act forcefully and soon.”
Foreigners can finance our debt for a while, Meltzer says.
“But today most countries have their own deficits to finance. It is unwise to expect them, mainly China, to continue financing up to half of ours for the next 10 or more years.”
While inflation isn’t a threat yet, it ultimately will be, he says.
So how can we avoid the carnage? “A steady, committed policy to reduce future inflation and lower future budget deficits will avoid the crisis that current policies will surely bring,” Meltzer says.
“Low inflation and fiscal prudence is the right way to strengthen the dollar and increase economic well being.”
Some view it differently.
U.K. economist Bernard Connolly of Connolly Global Macro Advisors says the dollar must fall for the U.S. to avoid a bubble.
Otherwise, he told Reuters, the Fed will have to continue its loose policy to rescue the economy, thereby creating the bubble anew.
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