Choosing to debase the U.S. dollar through Federal Reserve-induced inflation and negative real interest rates was the easy road, traveled by many other governments, to avoid the political costs of recession. Unprecedented Fed liquidity injections led to, among other things, a reckless and imprudent bank-lending spree and a massive housing boom. According to the Fed, the value of American housing rose by 2 1/2 times between 1997 and 2007 to $24 trillion.

The ultimate cost of the Fed liquidity injections will be stagflation, even hyper-stagflation. However, leaders like Reagan, Thatcher and Volcker, with the courage to take the difficult road to kill stagflation, are nowhere to be found.