I hate to be pessimistic, but as I look on the horizon I think I see some hyper-inflation in our future.
There are many factors that can contribute to economic inflation. The most pernicious is the devaluation of currency. There are also many factors that contribute to devaluing a currency. The two most common are listed here. See if they sound similar to our current economic conditions.
* Oversupply of money - In keeping with the basic law of supply/demand, when a government prints currency, particularly currency not backed by anything, the increase in the money supply creates a decrease in the value of that currency.
* Creditor confidence - As a nation's debt load increases, potential creditors (bond purchasers) confidence that the debtor will be able to repay it decreases. This has the two-edged effect of devaluing the currency and forcing the debtor to pay higher interests rates on debt. The long term effect of the higher interest rates will be even higher debt. Which will mean even further devaluation of the currency. (note- we have record deficits, record debt, and diminishing international interest in purchasing our treasury bonds)
Increased costs in the production of goods is another major contributor to inflation. These costs are passed along to the consumer in higher prices. Given the priorities announced by the administration it seems quite likely, in fact inevitable, that there will be initiatives that will make the cost of current forms of energy rise sharply, and that corporate taxes will be increased. These costs will be passed along.
Inflation then can begin to feed upon itself. Prices rise, including those associated with production of goods and services, which in turn causes prices to rise again. The traditional methods for attempting to stem inflation (increasing interest rates to slow down the supply of money) has its own deleterious side effects.
The wise solution it would seem is sound economic policy. Reduced governmental spending to prevent current and future debt. Reduced taxation to encourage economic activity and growth. Unfortunately it appears we are heading in exactly the other direction.
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