The point to mark as President Biden prepares to parley Wednesday with Speaker McCarthy over the debt ceiling and the Fed announces its latest interest rate move is that they’re all looking at the short term. For a look at the farther horizon, feature the latest number of Grant’s Interest Rate Observer, which warns against “premature declarations of  victory” in respect of inflation because “for the long term, inflation’s got legs.”

Grant’s eyes a “long and winding road” ahead in which “inflation will persist at levels well above 2 percent,” and “financial assets will remain under pressure.” As the Fed weighs moving the goal posts in its inflation fight — settling for a target of three percent or four percent instead of its traditional two percent — Grant’s reminds that inflation has its own constituency: “the central bankers cultivate it, Wall Street needs it and the voters elect it.” 

The coincidence of scheduling on Wednesday, as we see it, underscores the connection between the debt ceiling and inflation crises. It’s an apt moment to note, as Grant’s does, how “the relentless loosening of monetary and fiscal norms” has gotten us into this position. Grant’s explains that it’s “the flight from the ancient verities of hard money and fiscal balance that’s converted inflation from a cyclical phenomenon into a secular one.”

That is the context that needs to be marked as the debt ceiling debate comes into focus. The supersized national indebtedness is a symptom of the age of fiat money. So reforming our monetary system is the key to resolving our debt, fiscal, and tax challenges. It is why we’ve suggested that Mr. McCarthy and the House Republicans seek a compromise that avoids a default but commits Congress to setting up a monetary commission.

Mr. McCarthy is going into his meeting with Mr. Biden with what appears to be a weak hand. National Review’s Rich Lowry is among many urging that “the GOP’s expectations for the showdown should be realistic.” The speaker doesn’t want to raise the debt limit without a commitment to cut spending, yet is taking a more conciliatory approach than some of his House GOP colleagues to the right, saying: “We are not going to default.”  

It’s not our place to evaluate the speaker’s negotiating strategy here, yet we do wonder how, by taking off the table the most potent bargaining chip he has, Mr. McCarthy intends “to find a reasonable and responsible way that we can lift the debt ceiling but take control of this runaway spending.” Mr. Biden, by contrast, has not budged from his press secretary’s insistence that “raising the debt ceiling is not a negotiation.”

It hardly seems constructive to play chicken with the national fisc as Mr. Biden is doing. Yet it’s not the first time, Grant’s writes, that “the federal finances were off the rails.” It was in 1957, Grant’s notes, that Senator Harry Byrd of Virginia mobilized the Congress to form an investigation into America’s financial condition, pointing to the “inflation which has started again with its ominous threat to fiscal solvency, sound money and individual welfare.”

The concerns were prescient. The solons warned that there wasn’t enough gold in America’s vaults to back up its dollars under Bretton Woods. Senator Wallace Bennett of Utah rued that “inflation seems to be becoming acceptable,” as devotees of Keynes were pushing for targeted, “creeping” price increases. One professor endorsed “a one percent inflation, even if it does, say over 40 years, wipe out 50 percent of your savings, as it would.”

Today, with inflation running at six percent, the Fed faces pressure to jettison its two percent target. The GOP faces heat for daring to propose spending cuts to get the debt under control. Both problems stem from the abandonment of honest money. Bennett summed it up well in 1957, noting: “when government creates money faster than its citizens create value, it does not create wealth, it only creates inflation, which is the illusion of wealth.”