Congressman Paul Ryan has written an excellent op-ed for the New York Times discussing why the massive stimulus bill passed by Congress could lead us down a dark path to stagflation. One of the main problems that he points out is that countries who have historically been the biggest buyers of our debt, are now implementing massive stimulus packages of their own and will require borrowing money instead of having extra to invest. If we end up with more supply of bonds than demand, this would cause interest rates to rise. This is a problem because, as he says, “…inflation is a destroyer of savings, a killer of wealth, a crusher of confidence.” One of the worst things that could happen is for interest rates to rise while the economy is still in shambles (stagflation).
Additional thought:
With the Federal Government looking to raise so much money for its own use, there may be a crowding out effect whereby money that would have otherwise been invested in private enterprise will go to the government instead. This has the effect of stifling American business, which is the exact opposite of what we as a country need to accomplish right now.
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