America’s inflation crisis is due to deficit spending, economist warns

America’s cost-of-living crisis is not a mystery of market failure but the bill coming due for years of deficit spending and monetary expansion, says economist Peter Schiff.

In a recent social media post, Schiff argued that government-fueled inflation is the primary reason many Americans are struggling to afford basic necessities.

“The reason average Americans can no longer afford to buy basic necessities is that they are being forced to cover the cost of massive federal deficit spending through inflation,” he wrote.

Schiff’s argument centers on the scale of federal borrowing. Total U.S. government debt now exceeds $38 trillion when publicly held debt and intragovernmental obligations are combined, a level he views as unsustainable without monetary support.

Rather than funding those deficits through higher taxes, Schiff contends the government relies on the central bank to absorb debt, shifting the burden onto households through higher prices. In this view, inflation serves as an indirect tax driven by monetary policy.

“The Fed provides the money and credit, and with the return to QE it’s about to open up the floodgates,” Schiff added, referring to quantitative easing — the practice of central-bank asset purchases that expand liquidity.

While Fed officials have avoided labeling recent policy actions as a return to QE, the central bank has indicated it will resume purchases of Treasury securities on an “ongoing basis” to support market liquidity and manage short-term funding pressures.

Critics like Schiff argue that such operations are functionally indistinguishable from QE, regardless of how they are described.

“QE by another name is still inflation,” Schiff said in a separate post.

The inflation bill is coming due

While economists continue to debate the root causes of inflation, Americans are experiencing a steady erosion of their purchasing power as prices remain elevated.

Much of that strain reflects the cumulative impact of inflation since the pandemic, when the Fed cut interest rates to near zero and injected trillions of dollars into the economy to offset the effects of lockdowns and economic disruption.

Although the Consumer Price Index (CPI) has retreated sharply from its mid-2022 peak of 9.1%, prices have not fallen. Instead, inflation has compounded.

Since the start of the decade, cumulative inflation stands at roughly 26%, leaving households paying significantly more for everyday goods and big-ticket purchases alike, from fast food meals to new vehicles.

According to research from Ritholtz Wealth Management, the 2020s are on track to become the most inflationary decade since the 1970s, when oil supply shocks and loose monetary conditions drove a prolonged surge in consumer prices.