Laffer on inflation and interest rates

The author of The End of Prosperity: How Higher Taxes Will Doom the Economy — If We Let It Happen Arthur Laffer came out with a piece on the Wall Street Journal talking about the threat of high inflation and interest rates if the Fed does not act on it. He also included some moves he thinks the Fed should perform in order to minimize the effect of the unique monetary policy that the Fed has so far implemented.

With the crisis, the ill-conceived government reactions, and the ensuing economic downturn, the unfunded liabilities of federal programs — such as Social Security, civil-service and military pensions, the Pension Benefit Guarantee Corporation, Medicare and Medicaid — are over the $100 trillion mark. With U.S. GDP and federal tax receipts at about $14 trillion and $2.4 trillion respectively, such a debt all but guarantees higher interest rates, massive tax increases, and partial default on government promises.

But as bad as the fiscal picture is, panic-driven monetary policies portend to have even more dire consequences. We can expect rapidly rising prices and much, much higher interest rates over the next four or five years, and a concomitant deleterious impact on output and employment not unlike the late 1970s.

Read the entire piece HERE.

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