Inflation and debt

In this paper we survey the historical record for over two centuries on the connection between expansionary fiscal policy and inflation. As a backdrop, we briefly lay out several theoretical approaches to the effects of fiscal deficits on inflation: the earlier Keynesian and monetarist approaches; and modern approaches incorporating expectations and forward looking behavior: unpleasant monetarist arithmetic and the fiscal theory of the price level. We find that the relationship between fiscal deficits and inflation generally holds in wartime when fiscally stressed governments resorted to the inflation tax. There were two peacetime episodes in the early twentieth century when bond financed fiscal deficits that were unbacked by future taxes seem to have greatly contributed to inflation: France in the 1920s and the recovery from the Great Recession in the 1930s in the U.S. In the post-World War II era a detailed examination of the Great Inflation in the 1960s and 1970s in the U.S. and the U.K. suggests that fiscal influences on monetary policy was a key factor. Finally we contrast the experience of the Great Financial Crisis of 2007-2008, when both expansionary fiscal and monetary policy did not lead to rising inflation, with the re

The bold face is mine. HT Kling, alert Skelton on MMT. 

The bold face says something.  You need income and outgo to balance the budget.  We do not have inflation today because Bernanke inserted the standard setting for seigniorage taxes.

The inflation of the 70s was the result of Congress absolutely refusing to pay for all the spending and Nixon had to default, direct inflation, double spending over night.  Stephanie Skelton has a role here as she has defined a method for constant devaluation and revaluation to keep the balance.

Our problem comes when Powell arbitrarily increases seigniorage as needed, he has no choice.  Eventually Congress sees the problem and refuses to pay for any of the spending.