The U.S. may pay a steep price to free itself of its economic and financial travails: bigger government, faster inflation and a poorer country.

That would mark a reversal from the course of much of the past two decades, when Washington has been dismantling regulations, the Federal Reserve has been largely successful in containing inflation, and many Americans have felt wealthier thanks to rising home prices and cheaper imports.

``We're going to have 4 to 5 percent inflation,'' says Kenneth Rogoff, former chief economist for the International Monetary Fund who's now at Harvard University. ``The dollar will continue to drop and stay down for years. And we're going to end up with more regulation.''

(Article continues below)

The seeds of that outcome are already being planted. Fed Chairman Ben S. Bernanke and his colleagues acknowledged last week that inflation expectations may have risen, even as they cut the benchmark interest rate three-quarters of a percentage point and began lending directly to big Wall Street dealers. Lawmakers are discussing expanding the government's role in the housing market and increasing oversight of financial services.

Americans sense that the economy is changing for the worse. Some 45 percent of consumers expect their inflation-adjusted incomes to fall in the coming year, the worst outlook since 1990, according to a University of Michigan/Reuters survey.

More Pessimists

``The pessimists are beginning to outnumber the optimists,'' says Lynn Franco, who runs a separate monthly survey of consumers for the New York-based Conference Board. ``Expectations about the future are at a 17-year low.''

What's happening, economists say, is the bill is coming due for Americans after years of living beyond their means. Over the last 15 years, domestic demand has grown an average 0.3 percentage point more per year than the overall economy.

Full article here.