The most important thing to understand about the persistent inflation that has destroyed 20 percent of the dollar’s purchasing power since Joe Biden took office is that inflation is not the target of government policies designed to eliminate it. Inflation is the creation of government policies and government policies intentionally perpetuate inflation to enable the government to default unlawfully on its otherwise unsustainable debt.

Inflation is always and everywhere the result of government policies that increase the supply of money circulating in the economy faster than the productive sectors of the economy can expand their capacity to produce goods and services for purchase.

From day one, the Biden administration has flooded the economy with borrowed money in the form of transfer payments, subsidies, and grants designed to secure the political support of favored constituencies such as those in the green tech sector.

At the same time, Biden-controlled federal agencies have unleashed a tidal wave of crushing regulation designed to reduce the productive capacity of disfavored constituencies such as the oil and gas industry.

The destructive combination of these irresponsible policies, blowout spending that stoked demand and stifling regulation that choked supply, inevitably created the inflation that has so dramatically degraded the value of our dollars during the last three and a half years.

President Biden has asserted that fighting inflation is the top economic priority of his administration. Nothing is farther from the truth. There is no war on inflation. The president has no intention of altering the irresponsible spending and regulatory policies that define and drive the progressive agenda.

Those policies have produced a mountain of new government debt. Under President Biden, the national debt has increased a whopping $13 Trillion and now stands at close to $35 Trillion. The national debt continues to increase by almost $3 Billion per day; $120 Million per hour; $2 Million per minute. The national debt is now larger than the total value of all the goods and services currently produced by the American economy. This fiscal year, the government is spending more on interest payments just to service its debt than it is spending on national defense or Medicare.  

Concerned observers are in total agreement. The ever-growing national debt burden of the United States is unsustainable. It poses a deadly serious threat to our economic well-being and national security. If not addressed effectively, it will lead to a financial crisis of devastating severity. 

The government could get its financial house in order by slashing wasteful spending and rescinding onerous regulations that stifle productive economic activity. Such actions would slow the growth of new government debt and, by expanding the economy, increase the tax revenues needed to pay down existing debt. Sadly, there is no chance the government will take such corrective actions so long as it remains under the control of progressives and their ruinous economic policies.

Profligate governments that fail to get their spending under control eventually reach a point where their debt burden is simply too large to sustain. They cannot borrow the new funds needed to make the interest and principal payments on their existing debt. They default.

The United States cannot legally default on its debt. The Constitution prohibits default. Section 4 of the Fourteenth Amendment, enacted after the Civil War to repudiate Confederate debt and put beyond question the integrity of the obligations of the United States, provides in part that “The validity of the public debt of the United States… shall not be questioned.”

Compliance with the Constitution requires that the debt obligations incurred by the federal government be repaid in full, dollar for dollar. Despite this clear legal requirement, the Federal Reserve intentionally perpetuates inflation to steadily devalue the dollar and thereby enable the government to pay off its debts for cents on the dollar and effectively default on its obligations.

Under federal law, the Federal Reserve has a dual mandate. It must pursue policies that promote maximum employment and stable prices. Fed Chairman Powell has repeatedly stated that the Bank is working to bring inflation under control and stabilize prices.

This is true only if you accept the Fed’s Orwellian redefinition of price “stability” as meaning a price inflation of at least 2% per year. The Fed seeks to justify its redefinition, and its official inflation target of 2%, by citing progressive economic theories that claim economic growth and employment cannot be maximized without inflation. Historical experience has clearly shown these progressive theories to be false. In the second half of the nineteenth century, for example, America enjoyed strong economic growth, rapidly rising standards of living, and declining prices.

 The Fed clings to discredited progressive economic theories for one reason -- to legitimize and perpetuate the inflation that enables the government pull off a slow-motion stealth default. Price inflation at 2% per year is certainly not the price stability required by the Fed’s statutory mandate. Over a generation, that rate of inflation will reduce the value of a dollar by approximately 50%. That will help the government avoid having to fully repay its debts, but it will be devastating to American households.

By using devalued dollars to pay its debts, the government is failing to honor its financial obligations. It is defaulting on those obligations and cheating the institutions and individuals who purchased its securities. And it is violating the Constitution. Inflation is not only destructive economically; it is also unlawful.

The upcoming elections are an opportunity to identify and support candidates who are genuinely committed to fighting inflation; candidates who understand that supply-side reforms can maximize growth and employment without inflation; candidates who understand that zero is the inflation rate that the Federal Reserve needs to target; candidates who understand that our national security and economic well-being require the government to get its financial affairs in order and to honor fully its financial obligations.

J. Kennerly Davis is a former finance executive at a Fortune 500 electric and gas company, and a former Deputy Attorney General for the Commonwealth of Virginia.

Image: Tony Webster via Wikipedia