Guest Post by Nick Giambruno
In the past, central banks could say—with some credibility—that they could counteract rising prices by hiking interest rates.
For example, in 1981, former Fed Chair Paul Volcker took interest rates north of 18% to tame inflation.
However, such a move is not an option today.
That’s because federal debt is so extreme that even a return of interest rates to their historical average would mean paying an interest expense that would consume more than half of tax revenues. Interest expense would eclipse Social Security and defense spending and become the largest item in the federal budget.
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