Populist Backlash Will be Against China and Inflation, Not Taxes

I've been hearing talk of a populist backlash against some of bailout measures started by President Bush and now carried on by President Obama. I would welcome a non-partisan backlash against growing government and deficit spending, but I don’t believe we'll see one. If we do have a backlash, it will be in the following areas:

• A nationalist backlash against US dependence on China – Lately they've been expressing concern about our loose monetary policy. Regardless of whether people agree with US monetary policy (or even know what monetary policy is), they might get tired of having to answer to China
• A backlash if inflation occurs – People remember the recessions of '02 and '91 more clearly than the inflation of the 70s. Inflation isn't all that bad, but since it's new it might seem scarier than a recession without inflation, which is fresher in people's minds. The higher nominal rates that come with inflation might make the housing bust more painful, as rising interest rates depress real estate prices.

If we push the fiscal and monetary stimuli levers too far, we will have these conditions and the political firestorm that comes with them.