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The CBO Isn’t Allowed to Forecast an Inflationary Debt Crisis
by Robert P. Murphy
Mises.org
Longtime followers of infeneo (and its associated InFi podcast) know that I am no friend of Modern Monetary Theory (MMT). My chief complaint is that their ostensibly unorthodox ways of viewing government finance are incredibly misleading, at least in the hands of some of their most popular gurus. In today’s post I’ll give yet another example, this one coming from a tweet by Stephanie Kelton (and endorsed by Warren Mosler himself).
Specifically, Kelton and Mosler argue that because the Congressional Budget Office (CBO) isn’t forecasting a sharp inflation problem for the US economy, its rising debt must not be a problem after all. As I’ll explain, this argument is incredibly slippery, though perhaps Kelton and Mosler mean it in earnest.
Kelton and Mosler Make Their Case
Below I reproduce a screenshot of the Twitter exchange, which started with Kelton, whom I retweeted, and then Mosler responded to me:
Wall Street and the World Increasingly Alarmed by U.S. Debt Crisis
from King World News
Wall Street and the world are increasingly alarmed by the US debt crisis. This has been yet another catalyst for the bull market in gold as global central banks continue to increase their gold hoards.
July 10 (King World News) – Gerald Celente: With the annual U.S. budget deficit already climbing toward $2 trillion, Republicans in Congress dug the budget hole even deeper by passing Donald Trump’s “big beautiful” tax-cut legislation, which the latest projections say will add $3.4 trillion to the national debt by 2035.
In the past, legislators have been willing to increase debt in the face of a crisis, such as World War Two or the Afghan war following the September 11 attacks.
This time, however, there is no economic crisis requiring a massive debt increase. In fact, analysts say, the growing debt is the crisis, having reached a level resembling that during the 2008 Great Recession.
How to Think About Trump’s Unorthodox Monetary Policy
by John Carney
Breitbart.com
The Deeper Economics Beneath Trump’s Monetary Policy
Donald Trump has a message for the Federal Reserve: “LOWER THE RATE!!!”
In a recent series of Truth Social posts, the president made the case that the strength of the U.S. economy justifies lower interest rates. He wrote:
“Tech Stocks, Industrial Stocks, & NASDAQ, HIT ALL-TIME, RECORD HIGHS! CRYPTO, ‘Through the Roof.’ NVIDIA IS UP 47% SINCE TRUMP TARIFFS. USA is taking in Hundreds of Billions of Dollars in Tariffs. COUNTRY IS NOW ‘BACK.’ A GREAT CREDIT! FED SHOULD RAPIDLY LOWER RATE TO REFLECT THIS STRENGTH.”
He followed that up with a more pointed take:
America Has Reached a Turning Point On Debt
by William A. Owens and Barry W. Poulson
American Thinker
The Big Beautiful Bill Act (BBBA) will add trillions of dollars to the national debt over the next decade. Elon Musk is right that this is a turning point for American citizens. It is now clear that neither political party has the will to enact a fiscally responsible budget or solve the debt crisis. Musk threatens to form a third party if Congress kicks this can down the road.
The budget process is broken, as special interests continue to carve out their bits of a spoils system. Congress is not even willing to discuss reforms in Social Security and Medicare. The trust fund for these two entitlement programs will be depleted over the next decade, and they will then be funded on a pay-as-you-go basis. The unfunded liabilities in these entitlement programs plus the federal debt are now estimated to be over $100 trillion.
This turning point may not result in a debt crisis such as that experienced in Argentina. Argentina defaulted on its debt several times, resulting in financial crises.
Elon Musk Calls the U.S. Dollar ‘Hopeless,’ Says His America Party Will Embrace Bitcoin
Elon Musk slammed the dollar on social media, calling it and other fiat money “hopeless.” His America Party will embrace crypto, he says. That could set up another area of contention with Donald Trump, who was his political ally for many months before and after the November election.
by Chris Morris
MSN
Elon Musk wants his political third party to stand apart from the establishment—and he’s leaning into cryptocurrency to do so.
Replying to a tweet that questions the America Party’s stance on cryptocurrency, Musk gave a brief answer that indicated his lack of faith in the U.S. dollar.
“Will America Party embrace Bitcoin?,” the user asked. Musk replied: “Fiat is hopeless, so yes.”
Fiat is a government-issued currency that’s not backed by gold or silver and derives its value from public trust. (The Euro, British pound, and others are also fiat.) The dollar became fiat in 1971, when President Richard Nixon suspended the dollar’s convertibility into gold.
Messing with the Fed is Playing with Fire
Americans will miss economic stability when it’s gone.
by Quico Toro
Persuasion Community
My earliest political memory is of a currency crisis. I was eight, and Venezuela’s decades-old currency peg to the U.S. dollar had collapsed. I remember the adults in my life huddled around TV sets, whispering in worried tones as their world came apart at the seams. I didn’t understand all the details—I didn’t understand any of the details—but I knew our lives had changed. For the worse.
I’ve never met an American who could empathize with that story.
In the United States, currency crises are the stuff of academic seminars—bone-dry grist for economists’ mills. For all the talk about privilege, Americans are uniformly blind to the big one they all share: dollar privilege. America issues the world’s reserve currency, and the U.S. dollar’s peg to itself can never collapse. For that reason, the country is exempt from the kind of macroeconomic fuckery that periodically blights people in the rest of the world.
The (Declining) Status of the U.S. Dollar as Global Reserve Currency: Central Banks Diversify Into Other Currencies & Gold
by Wolf Richter
Wolf Street
There was an extra-special spectacle in Q1 among the Swiss franc, Australian dollar, British pound, and Japanese yen.
The dollar’s status as dominant foreign exchange-reserve currency has been diminishing for years as central banks have been diversifying to other currencies and over the past three years massively into gold. The decline of the dollar has been slow and halting, a couple of steps forward, one step back, sometimes bigger steps, other times smaller steps, and it remains by far the dominant global reserve currency. But the long-term trend is clear – and this has significant long-term consequences for the US.
The share of USD-denominated foreign exchange reserves declined to 57.7% of total foreign exchange reserves in Q1, according to IMF’s data today. In Q3 2024, the dollar’s share had dropped to a 30-year low.
Inflationary Pressures Began After 2015 – Tariffs are a Distraction
by Martin Armstrong
Armstrong Economics
The Federal Reserve’s Survey of Consumer Expectations foresees inflation returning to “pre-tariff” levels. As I have mentioned, the rising costs were a mere price correction and not a permanent rise in inflation. Tariffs were NEVER the root cause of inflation.
The central bank predicts that inflation will read 3% in 13 months, which would be the same level of inflation—at least by the Fed’s calculations—since Trump entered the White House. The Fed was stating that prices would rise 3.6% back in March and April when the tariffs were announced. They blamed the Smoot-Hawley Tariff for the Great Depression, just like they’re now blaming Trump’s tariffs for inflation. It’s a political narrative.
Central bank members see inflation remaining unchanged over the next three to five years at 3% and 2.6% respectively. However, members see prices increasing in food (5.5%), medical (9.3%), gas (4.2%), rent (9.1%), and college tuition (9.1%). There is a plethora of factors leading to inflation in the aforementioned categories, none of which have any relation to tariffs.
The Fallacy of “Measuring” Inflation
by Patrick Carroll
Mises.org
One of the most rudimentary topics in mainstream macroeconomics is inflation, and specifically the different methods of “measuring” inflation, such as the Consumer Price Index (CPI) and Producer Price Index (PPI). These concepts are taught in practically every introductory macroeconomics course, and they play a central role in policy discussions about the economy.
One noteworthy, but often overlooked, aspect of this topic is that the specific terminology of “measuring inflation” is taken for granted as the way of describing this area of study. The popular economics YouTuber Jacob Clifford gives a typical presentation in a recent video on economic indicators: “Now we’re going to talk about how to measure inflation,” he says, introducing a new lesson. “The most common measurement of inflation is the Consumer Price Index, or CPI.”
This language has become so commonplace that economists rarely question whether it is appropriate. But Austrian economists have long taken issue with this seemingly innocuous terminological choice, and for good reason.
The Fed’s Tariff Inflation Orthodoxy
by John Carney
Breitbart.com
The Fed Is Trapped in Groupthink About Tariffs
If you were wondering how Federal Reserve officials view Donald Trump’s tariff plans, the latest Federal Open Market Committee (FOMC) minutes make one thing perfectly clear: they all think tariffs are inflationary. That view is not up for debate inside the Eccles Building. Every participant who spoke about tariffs at the June meeting assumed they would push prices higher, with no dissenters and no counterpoint.
The debate wasn’t over whether tariffs would raise prices, but how much, how fast, and how long the effect would last. Some officials suggested the impact might be modest or delayed—especially if businesses were still working through inventory purchased before tariffs hit. Others noted that smaller firms and narrow-margin sectors would have no choice but to pass costs on to consumers. Still others warned that even businesses not directly affected might use the tariff environment to raise prices on complementary products. Several raised concerns about inflation expectations becoming unanchored.