Column: The Real Cost of Building Better | Chroniclers
Tracy C. Miller
After working on it for several months, the House of Representatives recently passed the Build Back Better Act. Its status in the Senate is uncertain, but if enacted it is expected to increase government spending by $ 1.75 trillion over 10 years.
With the tax increases in the legislation and stricter enforcement of the IRS, the Congressional Budget Office estimates a smaller increase of $ 250 billion in the deficit. But if the temporary and sunset arrangements designed to keep the official cost low are ultimately made permanent, as is likely the case with such things, the total could eventually increase to as much as $ 2.5 trillion in the world. during these 10 years.
Whether the sticker price is worth it or not, we need to consider the hidden cost of inflation. President Biden claims that because of the benefits for American workers and their families, it would reduce inflation. But the more this is added to the national debt, the more inflation will rise.
Inflation is not directly caused by deficit government spending. It is the result of the money supply, which is controlled by the Federal Reserve, growing faster than the production of goods and services. Since the start of the pandemic, there has been an almost unambiguous relationship between the increase in public deficits and the increase in the money supply.
Public deficits are financed by the sale of treasury bills. If the deficits are not too large, they can be financed by borrowing from the public and foreign investors. But foreign investors have bought fewer U.S. government bonds in recent years, and U.S. investors have not increased their bond purchases as the deficit widened. So the only way for the federal government to sell the trillions of dollars in additional bonds needed to fund our recent and rapid growth in public debt is for the Fed to buy those bonds. This is where the money supply increases.