Interesting article.
I agree that rising government deficits in the united states which are caused by an increasing political divide & popularism on both sides is the root problem and that this fiscal spend is going to cause a certain degree of inflation and will hurt the value of the dollar.
This is actually one of my main reasons to be bullish on equities as this spend is going to cause increased demand from which mainly U.S. companies are able to profit + holding assets like equities will serve as a protection from USD inflation. See also: Dollar liquidity during quantitative tightening and record U.S. debt levels - #9 by moritz
I also agree that there is the risk of fiscal dominance as described in the article that central banks could be pressured into solving fiscal problems. Starting from 2022 the Fed certainly surprised some market participants by hiking strongly and proving it’s independence for now but this could change again.
When it comes to rising interests and spending I think the effects on saving accounts of consumers will be the most interesting to observe (if and when rates start to eventually increase there), I do not believe though that interests will be able to compensate for past inflation and overall purchasing power will be lost.
The very specific argument of Lyn that higher interest payments from treasuries could have a meaningful impact on inflation stops short of going in-depth imo (she explains well different groups that hold treasuries but does not provide information on how much treasuries each of those groups hold) and does focus too much on the amount of additional interest rates that need to be paid in the very long term. (both short and longterm interest payment numbers are not relevant for inflation if you run the math on them - given the assumption holds that only a small portion of those payments will find it’s way into consumption)
While the Fed cannot solve fiscal problems and higher interest rates do certainly make the deficit problem worse it could also provide much-needed pressure on politicians to rethink their spending and stop relying on central banks.