"The Federal Reserve touting tighter money as a curb on inflation strangely coincides with the central bank’s reticence in acknowledging loose money as a catalyst for it. If tighter money acts as a cure to the disease, then why not just come clean about loose money as a cause of it?
The Federal Open Market Committee (FOMC) raised the federal funds rate for the first time since 2018 in March. The FOMC said that in pursuit of the Federal Reserve’s goal of 2 percent inflation “the Committee decided to raise the target range for the federal funds rate to 1/4 to 1/2 percent and anticipates that ongoing increases in the target range will be appropriate.
In addition, the Committee expects to begin reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities at a coming meeting.” The FOMC provided more deflection than diagnosis by chalking up inflation to “supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures.”
The policy shift preceded April’s announcement that the Consumer Price Index (CPI) rose at an annualized rate of 8.5 percent for March. The last time the CPI exceeded this rate Ayn Rand still walked among we the living, Bess Truman still held the oldest Medicare card in America, Jack Webb still wanted “Just the facts, ma’am,” Leonid Brezhnev’s eyebrows still raised eyebrows, and John Belushi still could say, “But, nooooo!”
Even this WABAC machine understates how long ago the last time the dollars in our pockets weighed us down so much by feeling so light: December 1981’s 8.9 percent rate of inflation fell from over 12 percent a year earlier.
The following January, it dropped to 3.7 percent. Put another way, the last time rates exceeded ours, Americans felt great optimism. We currently feel pessimism because monetary pressure and other forces continue to push the value of money lower.
Rates headed in the right direction four decades ago. Our upward inflation trajectory acts as a real downer. An anxiety exists as to whether regular unleaded at $4.25 a gallon, roast beef at $11.99 a pound, and Miller Lite at $22.99 a case will remain at that price point upon your next visit — or whether, by the time you read this, we will all ride bicycles to the supermarket, feast on bologna, and wash away our troubles with Natural Light.
Like the Federal Reserve, the White House avoided blaming domestic monetary policy for domestic money problems. Instead, the Biden administration has faulted “the greed of meat conglomerates,” unleashed the “PutinPriceHike” hashtag, and echoed the boss’s line: “The significant reason why prices are up is because of COVID affecting the supply chain.”
Which is it? Any explanation that avoids holding central bankers, and the politicians who force their hand, into account will do. And those lower on the political food chain similarly deflect.
An article featured on Politico Wednesday attempting to explain higher prices by looking at the ingredients of a cheeseburger ignored completely the activities of central bankers and instead cited “climate change,” “U.S. port congestion,” and “organized crime groups in Mexico” as reasons for pain at the cash register.
The authors similarly blame immigration restrictions: “Many large meat processing plants rely on H-2B visas for foreign farm workers — 70 percent of animal slaughtering and processing labor is estimated to be foreign born or undocumented.”
“Starbucks is raising its prices to consumers, blaming the rising costs of supplies,” Robert Reich wrote in the Guardian, vilifying such corporations as Target, McDonald’s, and Procter & Gamble for woes at the cash register. “But Starbucks is so profitable it could easily absorb these costs — it just reported a 31% increase in yearly profits. Why didn’t it just swallow the cost increases?”
If inflation were limited to retail and restaurants, then maybe Reich’s words might prove more persuasive. But of the twenty-one categories and subcategories the Bureau of Labor Statistics lists in summarizing the CPI, all show increases and more than half show double-digit increases.
The April report notes electricity up 11.1 percent, food up 8.8 percent, and used vehicles up 35.3 percent. The common denominator of these diverse goods remains the involvement of money in every exchange for them. But pundits and politicians continue to ignore the part of the equation that plays a part in all of the equations — money — and instead scapegoat particular players involved in very few equations.
Our inflation woes don’t start at the point of purchase but at the creation of the money that we use for exchanges. “What happens when only a handful of giant grocery store chains like @Kroger dominate an industry?”
Sen. Elizabeth Warren asked of a supermarket chain so dominant that it boasts not a single store in her native Massachusetts. “They can force high food prices onto Americans while raking in record profits. We need to strengthen our antitrust laws to break up giant corporations and lower prices.”
Fifty-six years ago, economist Milton Friedman responded to the Elizabeth Warrens of his day. “Housewives have a justifiable complaint,” Friedman conceded regarding protests of supermarkets. “But they should complain to Washington where inflation is produced, not to the supermarket where inflation is delivered.”
Another economist, not of the Chicago School but of the Austrian School, explained why so many imagine gouging by the private sector, rather than the greed of the public sector, as the cause of rising expenses.
“The semantic revolution which is one of the characteristic features of our day has also changed the traditional connotation of the terms inflation and deflation,” Ludwig von Mises pointed out in Human Action.
“What many people today call inflation or deflation is no longer the great increase or decrease in the supply of money, but its inexorable consequences, the general tendency toward a rise or a fall in commodity prices and wage rates. This innovation is by no means harmless.”
A glaring harm involves consumers blaming fellow injured parties. Companies, planning for the future in an uncertain landscape, must factor worst-case scenarios into pricing. They become villains instead of victims by acting in their own interests even by the consumers who act in theirs by always searching for the best deals.
Tesla raising the amount listed on the sticker for its cheapest vehicle, the Model 3, by $10,000, Netflix boosting its standard plan from $14 a month to $15.50, and Amazon taking Prime membership from $119 annually to $139 all reflect the likelihood of continued currency devaluation.
Did they really charge us more, or did the government first diminish the worth of our money to make such spikes inevitable? If the government recalculated a pound as 18 ounces, nobody who knows math would then blame a butcher for charging more for a pound of sirloin. Biden, Reich, and Warren do just this with regard to businesses charging more when dollars become less.
Big corporations, already provoking the public’s ire by dodging taxes and treating workers more with efficiency than humanity in mind, do not play the part of victim very credibly. But when one removes them from the conversation and focuses on smaller, mom-and-pop operations, it becomes easier to see that our inflation woes don’t start at the point of purchase but at the creation of the money that we use for exchanges.
“We always put out a price list and say, ‘Here’s our 2022 price list,’ owner Larry Johns told Fortune in January. “That’s always how we’ve done it. For the first time this year, we’re saying, ‘This is our current pricing effective this date, subject to change,’ because I can’t lock things in for a whole year. I don’t know what’s going to happen.”
The Federal Reserve’s balance sheet sat under $3.8 trillion in early September 2019. It now exceeds $8.9 trillion. This guaranteed currency devaluation. Why did it happen? Reckless fiscal policy drives reckless monetary policy.
M1, the money supply gauge essentially measuring cash and assets easily converted to cash, barely exceeded $4 trillion just prior to COVID. It now eclipses $20 trillion.
Reasons beyond currency inflation, such as the liquifying of assets for cash during the brief but painful economic depression of 2020, explain part of this. A large part of it also stems from America’s Great Money Flood, which started in September 2019 and continues to this day.
Some encouraging signs suggest that these diluting waters soon will recede. “We will take the necessary steps to ensure a return to price stability,” Fed Chairman Jerome Powell told the National Association for Business Economics on March 21.
“In particular, if we conclude that it is appropriate to move more aggressively by raising the federal funds rate by more than 25 basis points at a meeting or meetings, we will do so. And if we determine that we need to tighten beyond common measures of neutral and into a more restrictive stance, we will do that as well.”
And although the Fed’s balance sheet continues to climb despite promises to the contrary, it does so at a slower pace. Perhaps this precedes a leveling off, which precedes a shrinkage. The fact that the Fed continues to pump, even if less powerfully, as Americans drown in inflation still confounds.
The flood, a manmade disaster, did not affect all nations equally. Some countries that currently come close to the Federal Reserve’s 2 percent inflation target include Switzerland, China, Saudi Arabia, Vietnam, and Ecuador.
If rising prices were merely the result of global supply chains beyond the control of central bankers and world leaders, then why does it remain at manageable levels in many countries; out of control in such locales as Zimbabwe, Turkey, and Venezuela; and somewhere in-between in the United States? Politicians put out COVID or corporations or Russia as the Aunt Sally for us all to throw sticks at to distract us from their central role in this calamity.
Politicians can repeal an Eighteenth Amendment or an Interstate Commerce Act. They cannot repeal the law of supply and demand. The Biden administration and its well-wishers generally do not seek to do this except as it pertains to money. They concede the law of supply and demand still governs, say, gasoline.
But when it comes to that other side of the transaction — the money rather than the product side — they wish to imagine it away. This requires believing that M1 can quintuple, and the Fed’s balance sheet can more than double, in a few short years without consumer costs rising to adjust to the money glut.
Politicians deny the origins of inflation because they need it to feed their addiction: spending. Like a junkie resorting to theft after losing his job and draining his savings because of his habit, politicians jonesing for more and bigger programs turn to the monetization of debt once legitimate means of financing their addiction dry up.
Biden pitching the nearly $2 trillion Build Back Better Act as a way to combat inflation surely qualifies as junkie talk. His signing a $1.5 trillion spending bill right after the release of the March report showing 7.9 percent inflation represents junkie behavior. So does the $5.8 trillion 2023 federal budget he proposed at the end of March. And so, especially, does the redaction of monetary policy from the conversation about reasons for sticker shock.
This started not because avaricious businessmen conspired to jack up prices. It started because in 2020 gluttonous politicians spent $3.1 trillion more than the federal government received. The figure more than doubled any previous deficit.
They neither cut taxes nor raised revenue in response. And borrowing that gargantuan amount appeared as preposterous as the minuscule rate of return on bonds. So the federal government essentially created trillions of dollars that it promptly lent to itself. The feds continue to operate in this manner even if the Fed signals an end to the monetary policies that enable irresponsible fiscal policies.
We pay, to quote Debbie Harry, one way or another. A refusal to pay in spending cuts or tax hikes means that we pay for it in inflation."Inflation Is America’s Payment for the Fed’s Printing Addiction
The Federal Reserve touting tighter money as a curb on inflation strangely coincides with the central bank’s reticence in acknowledging loose money as a catalyst for it. If tighter money acts as a cure to the disease, then why not just come clean about loose money as a cause of it?
The Federal Open Market Committee (FOMC) raised the federal funds rate for the first time since 2018 in March. The FOMC said that in pursuit of the Federal Reserve’s goal of 2 percent inflation “the Committee decided to raise the target range for the federal funds rate to 1/4 to 1/2 percent and anticipates that ongoing increases in the target range will be appropriate.
In addition, the Committee expects to begin reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities at a coming meeting.” The FOMC provided more deflection than diagnosis by chalking up inflation to “supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures.”
The policy shift preceded April’s announcement that the Consumer Price Index (CPI) rose at an annualized rate of 8.5 percent for March. The last time the CPI exceeded this rate Ayn Rand still walked among we the living, Bess Truman still held the oldest Medicare card in America, Jack Webb still wanted “Just the facts, ma’am,” Leonid Brezhnev’s eyebrows still raised eyebrows, and John Belushi still could say, “But, nooooo!”
Even this WABAC machine understates how long ago the last time the dollars in our pockets weighed us down so much by feeling so light: December 1981’s 8.9 percent rate of inflation fell from over 12 percent a year earlier. The following January, it dropped to 3.7 percent. Put another way, the last time rates exceeded ours, Americans felt great optimism. We currently feel pessimism because monetary pressure and other forces continue to push the value of money lower.
Rates headed in the right direction four decades ago. Our upward inflation trajectory acts as a real downer. An anxiety exists as to whether regular unleaded at $4.25 a gallon, roast beef at $11.99 a pound, and Miller Lite at $22.99 a case will remain at that price point upon your next visit — or whether, by the time you read this, we will all ride bicycles to the supermarket, feast on bologna, and wash away our troubles with Natural Light.
Like the Federal Reserve, the White House avoided blaming domestic monetary policy for domestic money problems. Instead, the Biden administration has faulted “the greed of meat conglomerates,” unleashed the “PutinPriceHike” hashtag, and echoed the boss’s line: “The significant reason why prices are up is because of COVID affecting the supply chain.”
Which is it? Any explanation that avoids holding central bankers, and the politicians who force their hand, into account will do. And those lower on the political food chain similarly deflect.
An article featured on Politico Wednesday attempting to explain higher prices by looking at the ingredients of a cheeseburger ignored completely the activities of central bankers and instead cited “climate change,” “U.S. port congestion,” and “organized crime groups in Mexico” as reasons for pain at the cash register.
The authors similarly blame immigration restrictions: “Many large meat processing plants rely on H-2B visas for foreign farm workers — 70 percent of animal slaughtering and processing labor is estimated to be foreign born or undocumented.”
“Starbucks is raising its prices to consumers, blaming the rising costs of supplies,” Robert Reich wrote in the Guardian, vilifying such corporations as Target, McDonald’s, and Procter & Gamble for woes at the cash register. “But Starbucks is so profitable it could easily absorb these costs — it just reported a 31% increase in yearly profits. Why didn’t it just swallow the cost increases?”
If inflation were limited to retail and restaurants, then maybe Reich’s words might prove more persuasive. But of the twenty-one categories and subcategories the Bureau of Labor Statistics lists in summarizing the CPI, all show increases and more than half show double-digit increases.
The April report notes electricity up 11.1 percent, food up 8.8 percent, and used vehicles up 35.3 percent. The common denominator of these diverse goods remains the involvement of money in every exchange for them. But pundits and politicians continue to ignore the part of the equation that plays a part in all of the equations — money — and instead scapegoat particular players involved in very few equations.
Our inflation woes don’t start at the point of purchase but at the creation of the money that we use for exchanges.
“What happens when only a handful of giant grocery store chains like @Kroger dominate an industry?” Sen. Elizabeth Warren asked of a supermarket chain so dominant that it boasts not a single store in her native Massachusetts. “They can force high food prices onto Americans while raking in record profits. We need to strengthen our antitrust laws to break up giant corporations and lower prices.”
Fifty-six years ago, economist Milton Friedman responded to the Elizabeth Warrens of his day. “Housewives have a justifiable complaint,” Friedman conceded regarding protests of supermarkets. “But they should complain to Washington where inflation is produced, not to the supermarket where inflation is delivered.”
Another economist, not of the Chicago School but of the Austrian School, explained why so many imagine gouging by the private sector, rather than the greed of the public sector, as the cause of rising expenses.
“The semantic revolution which is one of the characteristic features of our day has also changed the traditional connotation of the terms inflation and deflation,” Ludwig von Mises pointed out in Human Action. “What many people today call inflation or deflation is no longer the great increase or decrease in the supply of money, but its inexorable consequences, the general tendency toward a rise or a fall in commodity prices and wage rates. This innovation is by no means harmless.”
A glaring harm involves consumers blaming fellow injured parties. Companies, planning for the future in an uncertain landscape, must factor worst-case scenarios into pricing. They become villains instead of victims by acting in their own interests even by the consumers who act in theirs by always searching for the best deals.
Tesla raising the amount listed on the sticker for its cheapest vehicle, the Model 3, by $10,000, Netflix boosting its standard plan from $14 a month to $15.50, and Amazon taking Prime membership from $119 annually to $139 all reflect the likelihood of continued currency devaluation. Did they really charge us more, or did the government first diminish the worth of our money to make such spikes inevitable?
If the government recalculated a pound as 18 ounces, nobody who knows math would then blame a butcher for charging more for a pound of sirloin. Biden, Reich, and Warren do just this with regard to businesses charging more when dollars become less.
Big corporations, already provoking the public’s ire by dodging taxes and treating workers more with efficiency than humanity in mind, do not play the part of victim very credibly. But when one removes them from the conversation and focuses on smaller, mom-and-pop operations, it becomes easier to see that our inflation woes don’t start at the point of purchase but at the creation of the money that we use for exchanges.
“We always put out a price list and say, ‘Here’s our 2022 price list,’ owner Larry Johns told Fortune in January. “That’s always how we’ve done it. For the first time this year, we’re saying, ‘This is our current pricing effective this date, subject to change,’ because I can’t lock things in for a whole year. I don’t know what’s going to happen.”
*****
The Federal Reserve’s balance sheet sat under $3.8 trillion in early September 2019. It now exceeds $8.9 trillion. This guaranteed currency devaluation. Why did it happen? Reckless fiscal policy drives reckless monetary policy.
M1, the money supply gauge essentially measuring cash and assets easily converted to cash, barely exceeded $4 trillion just prior to COVID. It now eclipses $20 trillion. Reasons beyond currency inflation, such as the liquifying of assets for cash during the brief but painful economic depression of 2020, explain part of this. A large part of it also stems from America’s Great Money Flood, which started in September 2019 and continues to this day.
Some encouraging signs suggest that these diluting waters soon will recede.
“We will take the necessary steps to ensure a return to price stability,” Fed Chairman Jerome Powell told the National Association for Business Economics on March 21.
“In particular, if we conclude that it is appropriate to move more aggressively by raising the federal funds rate by more than 25 basis points at a meeting or meetings, we will do so. And if we determine that we need to tighten beyond common measures of neutral and into a more restrictive stance, we will do that as well.”
And although the Fed’s balance sheet continues to climb despite promises to the contrary, it does so at a slower pace. Perhaps this precedes a leveling off, which precedes a shrinkage. The fact that the Fed continues to pump, even if less powerfully, as Americans drown in inflation still confounds.
The flood, a man made disaster, did not affect all nations equally. Some countries that currently come close to the Federal Reserve’s 2 percent inflation target include Switzerland, China, Saudi Arabia, Vietnam, and Ecuador. If rising prices were merely the result of global supply chains beyond the control of central bankers and world leaders, then why does it remain at manageable levels in many countries; out of control in such locales as Zimbabwe, Turkey, and Venezuela; and somewhere in-between in the United States?
Politicians put out COVID or corporations or Russia as the Aunt Sally for us all to throw sticks at to distract us from their central role in this calamity.
Politicians can repeal an Eighteenth Amendment or an Interstate Commerce Act. They cannot repeal the law of supply and demand. The Biden administration and its well-wishers generally do not seek to do this except as it pertains to money. They concede the law of supply and demand still governs, say, gasoline. But when it comes to that other side of the transaction — the money rather than the product side — they wish to imagine it away. This requires believing that M1 can quintuple, and the Fed’s balance sheet can more than double, in a few short years without consumer costs rising to adjust to the money glut.
Politicians deny the origins of inflation because they need it to feed their addiction: spending. Like a junkie resorting to theft after losing his job and draining his savings because of his habit, politicians jonesing for more and bigger programs turn to the monetization of debt once legitimate means of financing their addiction dry up.
Biden pitching the nearly $2 trillion Build Back Better Act as a way to combat inflation surely qualifies as junkie talk. His signing a $1.5 trillion spending bill right after the release of the March report showing 7.9 percent inflation represents junkie behavior.
So does the $5.8 trillion 2023 federal budget he proposed at the end of March. And so, especially, does the redaction of monetary policy from the conversation about reasons for sticker shock.
This started not because avaricious businessmen conspired to jack up prices. It started because in 2020 gluttonous politicians spent $3.1 trillion more than the federal government received. The figure more than doubled any previous deficit.
They neither cut taxes nor raised revenue in response. And borrowing that gargantuan amount appeared as preposterous as the minuscule rate of return on bonds. So the federal government essentially created trillions of dollars that it promptly lent to itself. The feds continue to operate in this manner even if the Fed signals an end to the monetary policies that enable irresponsible fiscal policies.
We pay, to quote Debbie Harry, one way or another. A refusal to pay in spending cuts or tax hikes means that we pay for it in inflation.?
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