From 2010 to 2021 the United States was able to run approximately $670 billion of deficits per year without any inflationary impact.
All of that disappeared as soon as we started sanctioning -- seizing -- funds and assets from those even peripherally-involved in any sort of Russian business and from that point forward every dollar of new Treasury issuance in excess of tax receipts reflects back immediately and durably into US inflation.
We can't get that privilege back because nobody will believe us ever again in that regard.
It doesn't matter whether this is "right" or "wrong" because this is a matter of opinion on the part of global trade entities and is not under our control.
To put context on this that is twice the total amount of tax revenue received by Treasury from workers for Medicare, nearly 150% of the CORPORATE income tax revenue received last year and roughly 25% of the individual income tax revenue received.
All of this "benefit" in the form of deficit spending without inflationary consequence to the American consumer was free to the United States and our people. Literally free, because some currency has to be used for international trade in goods, there is a long lead time between ordering and receiving, during that time the funds are effectively sequestered and we got nearly all of that benefit whether the trade had either end in the United States or not without a single penny of cost to us. We earned it and had it simply because people trusted that the dollar was a safer (than the alternatives) way to pay someone -- nothing more or less.
That is irretrievably gone.
https://market-ticker.org/akcs-www?post=254422
Whether our involvement and sanctions activity with regard to the Russian/Ukraine war was justified or not is a separate discussion; the point on the table is that doing so without immediately increasing taxes by nearly $700 billion, cutting federal spending by the same amount, or some mix of the two is why your grocery bill and everything else has skyrocketed and it will not stop until that change is made. Indeed it will accelerate because the rising interest cost simply becomes more deficit spending.
This structural change wildly complicates the market's belief that the Fed will (or even can) tamper with the rate structure materially -- and that if they do it anyway the odds are extremely high it leads to near-immediate runaway inflation. That $700 billion in upward inflationary pressure every year that we formerly enjoyed an exemption from over the prior 15 years is real whether Powell and the rest of the Fed want it to be or not.
The markets have yet to figure out that this an underlying structural change every bit as important, and perhaps more-so, than what occurred during the Nixon years.
But the market will figure it out -- and that there is simply no possible way to get back what once was, nor to evade the math and what it ultimately means.
There is only one way that the Federal Government can address this within the current paradigm of our economy. I've been laying out the need for this structural reform since the 1990s with, of course, zero response from our "elected officials" who have in fact continued onward as if the pre-2022 international trade and clearing currency structure is intact.
It is not.
We are the Coyote and have in fact run off the cliff.
As soon as the market looks down, of course, we know what is going to happen.......
