As Deutsche Bank notes, “The current fiscal stimulus is more comparable with that seen around WWII. Then, US deficits remained between 15-30% for four years. While there are many significant differences between the pandemic and WWII we would note that annual inflation was 8.4%, 14.6% and 7.7% in 1946, 1947 and 1948 after the economy normalised and pent-up demand was released.”
If the U.S. economy descends into an inflation spiral like that experienced after World War II, we could be on the brink of excruciating economic pain.
However, the profligate spending by Congress is only part of the problem.
According to Deutsche Bank, “Monetary stimulus has been equally breath-taking. In numerical terms, the Fed’s balance sheet has almost doubled during the pandemic to nearly $8tn. That compares with the 2008 crisis when it only increased by a little more than $1t, and then increased another $2tn in the subsequent six years.”
As any economist will tell you, printing gobs of money over a short period (which is what the Federal Reserve has done during the pandemic) is a key inflation ingredient.
We have seen this happen many times over the past century. From Weimar Germany to present-day Venezuela,
massive money printing never works and always spurs out-of-control inflation.
The Deutsche Bank report concludes with this dire warning, “We worry that inflation will make a comeback. Few still remember how our societies and economies were threatened by high inflation 50 years ago. The most basic laws of economics, the ones that have stood the test of time over a millennium, have not been suspended. An explosive growth in debt financed largely by central banks is likely to lead to higher inflation. … Rising prices will touch everyone. The effects could be devastating, particularly for the most vulnerable in society. Sadly, when central banks do act at this stage, they will be forced into abrupt policy change which will only make it harder for policymakers to achieve the social goals that our societies need.” -
https://thehill.com/opinion/finance/557743-deutsche-bank-issues-dire-economic-warning-for-america