> This is the opposite of Keynesian theory which says you should run surplusses during boom times and deficit-financed stimulus during recessions.
What this theory has failed to do over time is to prevent the amount of outstanding public and private debt from perpetually expanding.
During boom times, people are inclined to borrow (i.e. create money) to take advantage of the economic opportunities. What the theory says is that we can/should then adopt policies to pay back debt (i.e. destroy money) at the same time, which can then be done without causing deflation. So that's fine, when times are good the amount of debt will expand less than it might have, though it still expands some because slight inflation is so much better than any deflation.
Then when times are bad, we lower interest rates and engage in deficit spending to stimulate the economy. Debts expand a lot.
Notice that neither of these involves the level of debt ever going down, but one of them involves it going up a lot. Advance a few decades and the level of public and private debt is out of control and the interest payments are becoming a large problem.
So how do we get out of this? At some point the level of debt has to go down, but that destroys money, which causes deflation, which is an unmitigated catastrophe that hyper-regressively increases the real value of everyone's huge outstanding debts.
What we need is a way to create money to offset the currency destruction of debt-reduction without just recreating the debt somewhere else. But we know how to do that -- the government can print money. Then raise bank loan interest rates so that people have the incentive to pay down their debts, while at the same time using the money you're printing to lower taxes without cutting services so that people have that money to use to pay down their debts with.
But printing money has a bad name. Failing countries do it a lot, and people think it will cause inflation. Which it does, of course, but that's the point -- inflation to offset the deflation of reducing debts.
So they're apparently being stealthy about it, because there's a back door into this. Instead of having Congress print money, you have them pass a budget with a huge deficit. Then the Fed creates money to buy the debt. Different accounting, same result. Debt held by the Fed "doesn't count" because the treasury pays "itself" when the bond matures.
The issue now is that the Fed needs to get the rates calibrated right. They needed to be raised from zero to get people to actually start paying down debts, but too much and borrowers start to destroy money faster than Congress is creating it through deficit spending. And a little bit of higher interest rates goes a long way when the amount of outstanding private debt is as high as it is.
So now the Fed is trying to hit its inflation target in the face of all this, resulting in some uncertainty about what rates are going to be in a few years.