Surprise! Inflation is not getting better
Directors of the Federal Reserve board are admitting that inflation is not coming down, in spite of the massive increase in Fed Fund interest rates two years ago. That rate increase was touted as the solution to Jerome Powell’s “transitory” inflation. I said it wouldn't work then, and it hasn’t.
Lisa D. Cook, a member of the Fed’s board of governors, said during a recent speech that the labor market has been “somewhat more resilient” since September while inflation has remained “stickier” than expected. “I think we can afford to proceed more cautiously with further cuts.”
Of course inflation is “sticky” — the Fed is not addressing inflation. The Fed caused it.
The solution to persistent inflation centers on the reason for inflation in the first place: excessive money supply. This bout of inflation started in 2008, when the Federal Reserve started printing money, thinking it would stimulate the economy.
It didn’t. We suffered the Great Recession and still suffer its lasting effects.
Remember that printing money means national debt — debt that we citizens will pay off over generations. Remember, too, that all this excessive money supply was created solely so the administration and Congress could spend more than our government took in via tax revenues. That debt (Treasuries) resides squarely on the citizens’ shoulders to pay back. If anyone else did that to you, it would be called fraud and theft.
In order to reduce inflation, we need the following in this order:
(1) Stop federal spending, then reduce it substantially. Nothing good happens until the government stops and reduces its drunken spending habits.
(2) Stop printing currency (U.S. dollars) and start taking excess money supply out of the economy. Excess supply of dollars devalues the buying power of every other dollar in circulation. Dollar devaluation is inflation: we pay more dollars for the same amount of goods.
(3) Stop incurring debt (stop issuing Treasuries), and start paying down the massive debt burden (redeem existing Treasury bonds). The interest cost on this debt is almost $1 trillion each year.
These three mandates are intertwined; we can’t have one without the others. The ultimate solution resides with you and me, the citizens of this Constitutional Republic, to demand these actions of every politician we elect. Don’t leave it to our children and grandchildren to solve, or our great-grandchildren will no longer have a country.
Jay Davidson is founder and CEO of a commercial bank. He is a student of the Austrian School of Economics and a dedicated capitalist. He believes there is a direct connection joining individual right and responsibility, our Constitution, capitalism, and the intent of our Creator.
Image: Jerome Powell. Credit: Federalreserve via Flickr, public domain.
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