Inflation is now being driven by massive federal deficits. The deficit for the FY23 ending in September of next year is estimated to be $1.2 Trillion, adding to our $31.4 Trillion debt. That’s just the tip of the iceberg — we also have unfunded Social Security liability of $22.3 Trillion and Unfunded Medicare liability of $34.7 Trillion.

Federal Debt $31.4 Trillion
Social Security Liability $22.3 Trillion
Medicare Liability $34.7 Trillion
—————————–
Total Obligations $88.4 Trillion

The federal government’s tax revenues only total $4.9 Trillion per year. The debt is 18X the size of annual revenues which is less than spending by $1.2 Trillion. The debt is compounding at an accelerated rate. The US government has borrowed so much money that it will never be able to fulfill its promises without creating inflated dollars.

You can follow the live federal deficit and debt here:
https://www.usdebtclock.org/

The rhetoric going around right now about QT (Quantitative Tightening) and letting the balance sheet come down (currently down 3%) — is almost irrelevant. The decrease versus the balance sheet and the deficits are only scratching the surface. They are not enough to reduce inflation.

Large interest rates will make this debt difficult to service, and it’s trickling down to consumers. As an example, new homeowners will find it increasingly difficult to purchase a home, with mortgage rates north of 6.5%. Higher Interest rates will squeeze private economic activity and lower GDP and employment. At some point, the Fed will be forced to pivot back to QE to lower rates to help finance the government and allow for borrowing in the private economy. As long as we have these massive deficits fueling inflation, tinkering with rates and subdued QT will not lower inflation. At some point the Fed will be forced to go back to QE and buying treasuries to fund the federal government’s bloated spending and try and resuscitate the economy.