The financialization of our economy continues as a result of "regulatory capture" in which the regulatory environment has been neglected in favor of laissez faire (anything goes) policies based on the idea what is good for the rich will be good for the rest of us. The best example of this occurred in '08, and has been ongoing. Of course, co-opting the regulatory regime began long before that--notably in the repeal of Glass-Steagall in '99 and the subsequent growth of derivatives.
Two kinds of inflation
Another key consideration about inflation is whether the inflation is caused by too much spending (demand/price or "pull" inflation) or too much money in the system (monetary or "push" inflation.)
The historical response to rising prices is to raise interest rates. By making money more expensive to borrow, less is spent. It's worth here noting that our economy is based on consumer borrowing--70% of it as a matter of fact.
Therefore to keep the US economy growing by traditional metrics, more borrowing is necessary. I say traditional metrics because there are other indexes out there that do a better job of measuring our economy.
It's not a coincidence that the statistics chosen by economists are those that revolve around banking profitability which is accelerated by the financialization of the economy. The status quo is lodged in creating more debt, so of course the financial sector pushes the use of statistics based on borrowing.
Healthy indeed would it be if the standards for economic progress were based on something other that consumer debt levels. One characteristic of our economy is consumer borrowing but it doesn't have to be.
Economics is hardly a precise science, and the basing of analytical conclusions is very much a subjective process, one undoubtedly shaped by the financial sector and its weighty impact on academia and government.
Response to inflation
The problem with inflation isn't the inflation, it's the higher interest rates imposed in response to the inflation. If interest rates go up, the cost of borrowing goes up. Profits for the Fed and its banks will go down. This creates a powerful motive to keep the statistics on inflation down.
The US government is the largest borrower in the world and it needs its Treasuries to be bought to keep functioning. Like any borrower, our government wants to acquire debt as cheaply as possible.
The low rates that came out of the 2008 (and ongoing) Recession were a major benefit of the crisis-reaping. Trillions in long-term government debt was replaced with lower-yielding bonds issued at the depth of the crisis.
Between the bank/Fed and government, our economic policies are shaped by the needs of our biggest borrower--our government--to continue to finance its deficits. Like war profiteers, banks cash in on the debt government spending creates. The more the government spends, the more they borrow. Without deficit spending, there would be no interest payments on new debt issued by government.
It's interesting that conventional economic analysis-and in sympathy, the financial markets--views government-issued debt as the safest. Interest on government debt is usually the lowest based on the reality that government can simply print up the money to repay its debt--an acknowledgement Alan Greenspan actually made late in his tenure. So in that respect, principal invested in Treasuries is 100% guaranteed. Less clear is how much the initial investment will buy--its purchasing power--once the debt comes due and the dollars materialize to meet the redemption.
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