President Barack Obama needs swift approval from the Republican-run Congress to raise the swollen $16.4 trillion debt ceiling next month in order to prevent the U.S. government from a default. But here's where the real battle will go down.
Despite what many observers have expected inflation has remained quite tame.
However in 2013, that may be about to change. One factor that might cause a surge in inflation is the fiscal cliff.
That's because Bernanke is already buying $1 trillion of Treasury and housing agency bonds each year ($85 billion per month) against a budget deficit that is about the same level.
That means the inflow of funds to the economy from the Fed and the outflow of money to fund the government's spending are about balanced.
However, if we go over the fiscal cliff the Federal deficit immediately falls to about $300 billion per annum. At that point, Bernanke would be injecting an extra $700 billion a year into the economy - which would have a corresponding inflationary effect.
The Case for Higher InflationBut that's only part of the inflationary story.
Central banks around the world are also expanding their money supply. China has become more expansive, the European Central Bank is buying bonds of the continent's dodgier governments and Britain like the United States is monetizing nearly all the debt it creates to fund its budget deficit.
The big change in 2013 is now in Japan, where the new Abe government has told the Bank of Japan it wants much more buying of government bonds, to push the inflation rate up to 2%.
And just as Bernanke's money creation increases inflation internationally, Japan's new monetary push creation will likely increase inflation here in the United States.