Why a stagnant economy is more likely than high inflation

In this episode of FactSet's podcast, David Mieczkowski expounds on his recent analysis of the risk and impacts of government debt and spending as it relates to inflation. He also presents a relatively dower look at the U.S. economy going forward, based on what we've learned from Japan over the last decade or more.

Highlights from our episode can be found below.

Subscribe to our podcast in iTunes to get each of the episodes in this series delivered directly to your computer. To read more about David's work on inflation, check out his post on FactSet's Risk blog.

Some highlights from our episode, by timestamp:

2:30 - The Fed is not the only controller of the money supply. The private banking system can create reserves on its own.

4:30 - If you look at the total amount of U.S. debt outstanding it should be no more than the amount of money supply, but there is much more debt outstanding. Money is being created by the private banking system and infiltrating the system without the central bank's control. The amount of money the Fed is injecting is much less than what the banks create on their own in a normal economy.

7:30-9:00 - Housing and business debt decelerated during the crisis. If credit money does not expand, the government has little choice but to spend. The government has spent a lot of money, but not enough to make up for what would have been spent if the crisis never happened.

13:00 - As the economy picks up its output it will actually pull down the price level. It will be a long time before we have to worry about inflation.

14:00 - The government just has to keep spending. If not, we'd be using the playbook of the 1930s, where it took a World War and many years to rebuild the economy.

14:45 - The government needs to be the spender of last resort.

16:15 - Looking at Japan, it's been 20 years of relative economic malaise after their banking crisis.  It's better to suffer through that than letting the market correct itself.

17:00 - The ironic thing is that we really need is mild to moderate inflation to allow us to bear the debt load.

Read David's paper: Inflation and Credit Money - Why Money Helicopters Don't Matter