Meltzer says indebted government eventually cause inflation

WSJ: ...that continuing QE just expands the huge future problem of withdrawing trillions of idle reserves.... More than 95 percent of the reserves that the Fed supplied under QE 2 and 3 sit idle on bank balance sheets. M2 money growth for the year to the end of January 2014 is less than 5.5 percent. There is no mystery about why inflation remains low. The mistaken results of QE policy include Federal Reserve financing of outsize budget deficits. No one should require a tutorial about the longer-term consequences of using central banks to finance government deficits. Sooner or later the results are inflation, always and everywhere...

Let's look:

 Nixon Shock in 71 and inflation (the blue line)  for eight years.  Note the red line, deficits, started soon after the shock.

So when carpet bombing Vietnam made us nearly brock, the Fed took a loss and we had inflation for a while.




So, the question is, will the Fed take a sudden, huge loss on those bonds and allow DC to cause high inflation?  Or will the dollar drop in value as fast as it ran up in value?  I doubt it, DC is debt bound. Any rise in the ten year back to 3.5%, and DC cannot pay its bills.  I doubt the investment banks are going to allow an uncontrolled monetary shock as was done by Nixon.  Something sensible will happen.