The Short March Back to Inflation

Date: 04‑02‑2021

Source: The Wall Street Journal By Michael D. Bordo and Mickey D. Levy

Like today, policy makers of the 1960s had bigger worries than prices. Then a spike crushed the economy.

There is a long history of high budget deficits being associated with inflation, and Washington’s current profligate spending and the Federal Reserve’s expansive monetary policy may be pushing the U.S. down that path. In the U.S. and world‑wide, the link between deficits and inflation has been most apparent during wartime, as the fiscal burdens of combat spur central banks into inflationary financing. But there are also peacetime instances. Now, after a decade of modest inflation that has made many expect it will always stay low, a rise in inflation may come as a surprise.

Sounding the alarm about inflation is out of vogue. Skeptics point out that high deficit spending, zero interest rates and unprecedented quantitative easing didn’t spur inflation in the decade after the 2008‑09 financial crisis. That experience has left a strong impression on makers of monetary and fiscal policy.

TARGET balances, Bretton Woods, and the Great Depression

Michael Bordo (Rutgers University), 21 March 2014

Since 2007, there has been a buildup of TARGET imbalances within the Eurosystem – growing liabilities of national central banks in the periphery matched by growing claims of central banks in the core. This column argues that, rather than signalling the collapse of the monetary system – as was the case for Bretton Woods between 1968 and 1971 – these TARGET imbalances represent a successful institutional innovation that prevented a repeat of the US payments crisis of 1933.

During the Eurozone crisis, an analogy was made between the events in Europe between 2007 and 2012 and the collapse of the Bretton Woods System between 1968 and 1971. There has been a build-up of TARGET liabilities since 2007 by some central banks (notably Greece, Ireland, Portugal, and Spain, or the ‘GIPS’), and of TARGET assets by Germany and others. This is compared to the historical accumulation of big US current-account deficits under Bretton Woods’s gold-dollar standard that were matched by the large surpluses of Germany and others (see Sinn and Wollmershaeuser 2011 and Kohler 2012).