Biden’s next spending spree fuels a fight over risks

Among them is the long-held fear that massive spending — coupled with persistent easy-money policies from the Federal Reserve — in an already firming economy could spark a wave of inflation, a disorienting spike in interest rates and a painful pullback in a broad range of currently high-flying assets, from home prices to tech stocks to the newer fad of “non-fungible tokens” and Special Purpose Acquisition Companies (SPACs) that saw a flood of investor interest in recent months.

“History shows us that when money is effectively free, crazy things happen,” said Rep. Jim Himes (D-Conn.). “And we are starting to see lots of crazy things in the equity market, the high-yield bond market, SPACs and tokens. Oftentimes this kind of thing does not end well at all.”…

“My concern is that this is taking us further into substantial risk territory,” Larry Summers, the former top Obama and Clinton administration economic official, who has emerged as the most prominent Democrat warning of unintended consequences. “We either do what we did during Vietnam, which is explain inflation away and attribute it to transitory factors until we wake up one morning and we have 4 percent inflation expectations, or we aggressively try to contain it like we did after the Korean War and we have a recession. Both of those are substantial risks along with the risks to the dollar and of asset price bubbles.”