The Impact of High Inflation on Bonds and Bank Stocks.

Economist Charles Calomiris warns that the US government's budget deficit could lead to "fiscal dominance," where inflation becomes a tool to pay for expenses, leading to an "inflation tax" on currency and bank deposits. This could cause depositors to move their money out of the banking system, reducing bank profits. Calomiris predicts chronic 8% inflation is a possibility, and investors should avoid long-term Treasury bonds and bank shares. The St. Louis Federal Reserve Bank recently published his paper on fiscal dominance.