Will the Fed be able to fight inflation and not cause a recession or depression?

Congress has given the Federal Reserve the task of controlling inflation without causing a recession.

When a product or service is in short supply, the price goes up. As you have read on this blog, inflation always is caused by shortages of key goods and services.

Not by government spending, not by government waste, not by interest rates — inflation always has the same cause: Shortages.

In this regard, the single most important group of inflation-causing products is energy: Oil, gas, solar, wind, geothermal, and nuclear, with a focus on oil.

The blue line is inflation. The purple line is oil pricing. The vertical gray bars are recessions. Inflation tends to parallel oil pricing. Oil shortages cause oil prices to rise, which in turn, leads to inflation.

Other factors play some inflationary role, of course, but oil has been paramount. Thus, a powerful method for combating inflation would be to combat an increase in oil prices.

Lower oil prices can result from increased oil supplies and/or by increased use of alternatives to oil. All of this can be facilitated via federal deficit spending.

The government can reward directly or via tax laws, additional oil drilling, refining, and transportation. It  can do the same for all other energy sources: Natural gas, solar, wind, ocean, geothermal, hydrogen, bio, and nuclear energy.

Additionally, it can reward and fund alternative energy uses: Electric cars, busses, planes, trains, energy-efficient appliances, homes, offices, and buildings.

Thus counterintuitively, the proper application of increased rather than decreased deficit spending can reduce inflation.

So-called “excessive” federal spending, and a so-called “overheated” (rapidly growing) economy, do not seem to cause inflation. Generally, they cause prosperity.

Again, the blue line is inflation. The red line represents federal deficit spending. No parallelism here.

The above graph also shows that the growth of federal deficit spending declines in advance of recessions and rises during recessions (to cure recessions).

The reason: Economic growth requires money growth, and federal spending helps boost economic growth.

Without sufficient money growth we have recessions, and the only way those recessions are cured is with the federal input of dollars. That is how the government cured the short-lived COVID recession of 2020 and all previous recessions.

Reducing federal input now, will put us right back into a recession.

The Federal Reserve tells us it needs to increase interest rates to “cool” the economy. What does cooling the economy really mean? Why would we want to “cool” economic growth?

Again, the blue line is inflation. The red line shows interest rates (Fed Funds rate). The lines are reasonably parallel.

“Cooling” an economy means to backoff on federal deficit spending, which will recess the economy, i.e. move it toward recession.

The Fed has hoped to “cool” the economy without causing a recession. That is like draining blood while hoping not to cause anemia.

The above graph indicates that high interest rates are associated with high inflation and low interest rates are associated with low inflation. The Fed raises interest rates when it expects inflation, but that doesn’t cure the causes of inflation.

Compare interest rates to recessions (those vertical gray bars). We see a very strong tendency for interest rates to rise in advance of recessions and to come down during recessions. This demonstrates the recessionary effect of raising interest rates.

The Fed’s Data Show:

  1. Inflations are caused by shortages of key goods and services.
  2. Inflations are not caused by federal deficit spending, which if applied toward reducing shortages, actually can cure inflations.
  3. Oil shortages cause the price of oil to rise. Oil prices affect the prices of most goods and services, which directly links shortages of oil to inflation.
  4. The federal government has many financial tools to prevent oil shortages, including tax and money benefits for production plus tax and money benefits for reduced usage.
  5. Federal deficit spending grows the economy by adding dollars to the economy. Reductions in deficit growth lead to recessions. Increases in deficit growth cure recessions.
  6. Increasing interest rates can have a modest ability to temper inflations by increasing the dollar’s value. But these increases also lead to recessions by making investments more expensive.
  7. The economy (i.e. the private sector) never should be “cooled,” in that “cooling” implies the recessionary slowing of economic growth.

Inflation should be fought by federal spending to increase the supplies of scarce products or services and by helping the people afford to spend on goods and services. That is what made the COVID recession brief.

Given its Congressional mandate to control inflation, what tools does the Fed have to accomplish its mission?

Here is the opinion of a website named “the balance.”

How the Federal Reserve Controls Inflation
The Fed has several tools it traditionally uses to tame inflation. 

Open Market Operations (OMO)
The Fed buys or sells securities, typically Treasury notes, from its member banks. It buys securities when it wants them to have more money to lend. It sells these securities, which the banks are forced to buy. 

Selling securities (which the Fed is doing now) reduces the private sector’s liquidity, which is recessive in that it effectively reduces the economy’s spending-money supply.

Fed Funds Rate (FFR)
The FFR is the interest rate banks charge for overnight loans they make to each other.

Discount Rate
The Fed also changes the discount rate. That’s the interest rate the Fed charges to allow banks to borrow funds from the Fed’s discount window.

Interest rate increases supposedly mitigate against inflation by increasing the demand for (and price of) U.S. dollars (with which to purchase dollar-denominated bonds).

But that effect, if it exists, is quite small, as inflation does not seem to respond as the Fed predicts.

Managing Public Expectations
Former Chairman Ben Bernanke noted that public expectations of inflation are an important influencer of the inflation rate. 

Once people anticipate future price increases, they create a self-fulfilling prophecy. They plan for future price increases by buying more now, thus driving up inflation even more.

Tellingly, none of the Fed’s tools addresses the fundamental cause of inflation: Shortages of key goods and services.

Today’s inflation is due to shortages of food, lumber, computer chips, labor, supply chains, etc., and particularly of energy.

None of these shortages will be ameliorated by the Fed’s actions. In short, the Fed has been told to battle inflation and has been given, no weapons for the fight.

The Fed’s history of responding to inflation gives you an insight into what may work and what doesn’t.

Bernanke said the mistake the Fed made in controlling inflation in the 1970s was its go-stop monetary policy. It raised rates to combat inflation, then lowered them to avoid recession.

That volatility convinced businesses to keep their prices high.

It wasn’t the “stop-go” policy. The Fed failed, and still fails, to recognize that inflation is not caused by the oft-quoted but mythical, “Too much money chasing too few goods.”

Inflation, very simply, is caused by shortages — i.e. the “too few goods” part of the quote. In effect, the Fed has tried to cure a sprained ankle by an amputation.

Supply Chain Woes: There is a shortage of shipping containers because so many are full or stuck on vessels waiting to unload.

Big rig trucks are sitting idle and unable to move goods to alleviate the backlog because mechanics are waiting on parts for repairs which are at the port waiting to be trucked.

Equipment such as water pumps, NOX sensors, and rebuild kits are delayed for the want of a truck to deliver the parts.

And manufacturers of new trucks are running into the same problem as car manufacturers — a chip shortage — creating a reported backlog of 260,000 truck orders.

Nothing the Fed has the power to do will alleviate the supply chain woes. Congress, however, does have the tools at its disposal.

It can pay for the import and/or production of shipping containers. It can pay for more truck imports or production. It can pay for more truck drivers. It can pay for more chips to be imported or manufactured.

Congress and the President uniquely have the power to fix what is wrong with the U.S. economy, including inflation, but to do so, they must recognize that the problem is scarcity, not “heat.”

The problem doesn’t seem to be getting better. It’s beginning to look like the supply chain crisis will persist through all of 2022.

The most pressing problem in the supply chain is the shortage of semiconductor chipswhich has damaged many sectors, and is expected to last beyond 2022. This is the most critical shortage impacting manufacturing.

If a product has any sort of electronics, it’s got a chip.

Suppliers are planning on upping production, but the new facilities won’t be online to alleviate the shortfall until 2023 or 2024. Other experts are more optimistic.

Intel is back in the chip game and plans to open two facilities in Arizona at a cost of $20 billion. TSMC is also building a plant in the state as well at a cost of $12 billion.

Malaysia’s Unisem, a major chip assembler and tester, will close it’s Ipoh plants until September 15 to stop the spread of COVID-19 after three employees died.

Rohm, who supplies chips to Toyota and Ford, expects the shortage to continue through 2022.

The Fed can do nothing to correct the chip problem. Congress can aid financially, in the purchase and production of chips.

New Automobiles, Used Vehicles and Parts
“…the auto industry faces a volume drop of up to 36 million units over the next three years…”— AlixPartners

Due to a worldwide shortage of semiconductor chips, car manufacturers have cut back or stopped production on some new vehicles. An estimated 7.7 million vehicles will not be produced this year. This is driving up prices and demand for used vehicles, which is exacerbating ongoing delays for parts.

Demand for used vehicles has been climbing, mostly due to the downturn in new car production and COVID. Auto manufacturers are reporting shortages of wiring harnesses, plastics and glass, in addition to the chip problem. This is impacting auto parts supplies. Also, it looks as if there may be a tire shortagein the future, according to Car and Driver.

Arabica Coffee Beans:Coffee is one of the biggest imports. after petroleum for many nations. The price is the highest since 2014 and Arabica beans have risen 40%.

Colombia and Brazil account for two-thirds of the world’s Arabica production and both nations’ output has been slashed.

Lumber, Paper Pulp, Toilet Paper, Cardboard, Books. “Soaring lumber prices that have tripled over the past 12 months has caused the price of an average new single-family home to increase by $35,872.” — National Association of Home Builders

Labor shortages, and greater demand for boxes from online merchants is currently impacting many industries that rely on paper products. 

Wood pulp, a byproduct of wood used as a raw material for paper products, has increased 50.2% over the past year.

The toilet paper shortage is currently as bad as it was at the beginning of the pandemic. Only 60% of orders to retailers are being shipped. Costco is reinstating purchasing limits across the nation.

Labor shortages have two fundamental causes, both of which can be addressed by the federal government: Insufficient mechanization and insufficient net pay to workers.

The federal government could help fund labor-saving mechanization via tax breaks and/or via direct subsidy.

The federal government could encourage more hiring by eliminating the useless, regressive FICA tax, which penalizes businesses for hiring and workers for working.

Additionally, offering free Medicare for All would eliminate another hiring cost from those companies that now fund healthcare insurance for workers.

Increasing Social Security benefits would eliminate the need for company-sponsored retirement plans.

Shortages of wheat, barley, beans, peas:Probably no shortage is more disconcerting than food, especially a staple product like wheat.

You can blame a drought in Southwest, West, and Northern Great Plains states, affecting 98% of the spring wheat production.

The federal government should fund farmers for growing rather than paying them for not growing. This includes paying for labor and allowing more immigrant labor, in addition to funding farming education, equipment, and research into more productive crop species — things that will increase food production.

Shortages of HVAC equipment, parts, refrigerant: a decline of 40% of its annual production
Contractors are reporting difficulty sourcing parts and refrigerant due to the supply chain disruption and chip shortage.

The labor shortage has also visited the industry. Raw materials that go into these systems such as steel, aluminum, copper and plastics are in short supply. Also scarce are electrical components, such as motors and compressors, along with evaporator coils, resins for pans, and control boards.

Shortages of Silicone rubber: Silicone rubber prices have increased up to 25% and further hikes are predicted. This shortfall in supply appears to be driven by scarcity due to the supply chain, increased demand, and labor shortage.

Shortage of Appliances: COVID messed up both the supply and demand side of major appliances like refrigerators, freezers, dishwashers, dryers, dehumidifiers, and microwaves. 

Manufacturers are grappling with a shortage of stainless steel and a 20% increase in the cost of raw materials. Expect higher prices and delays of up to 8 months.

Shortage of Chicken Wings: Climate change, along with rising demand has created a shortage of chicken wings. The price of wings is up a reported 87%.

Shortage of Pool Liners, Chemicals, Chlorine Tabs: Shortages of PVC pipe, valves, tile, heaters, and concrete used in other industries is causing construction delays. The ongoing national labor shortage is negatively impacting pool and spa businesses.

Chlorine tablets are in short supply after a fire at the BioLab facility, and of course, COVID-19. 

Shortage of Drywall: Thanks to the Texas spring blizzard, a facility producing latex was severely damaged. This, along with a shortage of synthetic gypsum, led to the a decline in inventory.

Shortage of Printers and Ink: One of the unforeseen consequences of millions of people working at home was the increased demand for printers and ink. 

There is a backlog of billions of dollars of consumer goods waiting at the nation’s ports — in addition to all the supplies to keep the economy moving.

The backlog at ports is stalling the moving of goods through the supply chain and now is threatening economic collapse on a global scale.

IN SUMMARY

The fundamental causes of all inflations are shortages. The fundamental effect of inflations is they reduce the people’s ability to buy.

Congress and the President have the tools to combat both the causes and effects of inflation. To combat the causes, the government can use its infinite financial power to reduce shortages.

To combat the effects of inflation, the government can use its infinite financial power to provide the populace with net, take-home money.

The Fed cannot address the shortages that cause inflations, nor can it cure the effects of inflations. It doesn’t have the tools.

Raising interest rates and selling Treasuries to cure inflation is like using a sponge to cure a flood.

Congress and the President have the spending and tools to control all aspects of the economy, including inflation, deflation, recession, depression, and growth.

They should use them.

Rodger Malcolm Mitchell
Monetary Sovereignty
Twitter: @rodgermitchell
Search #monetarysovereignty
Facebook: Rodger Malcolm Mitchell

……………………………………………………………………..

THE SOLE PURPOSE OF GOVERNMENT IS TO IMPROVE AND PROTECT THE LIVES OF THE PEOPLE.

The most important problems in economics involve:

  1. Monetary Sovereignty describes money creation and destruction.
  2. Gap Psychology describes the common desire to distance oneself from those “below” in any socio-economic ranking, and to come nearer those “above.” The socio-economic distance is referred to as “The Gap.”

Wide Gaps negatively affect poverty, health and longevity, education, housing, law and crime, war, leadership, ownership, bigotry, supply and demand, taxation, GDP, international relations, scientific advancement, the environment, human motivation and well-being, and virtually every other issue in economics. Implementation of Monetary Sovereignty and The Ten Steps To Prosperity can grow the economy and narrow the Gaps:

Ten Steps To Prosperity:

  1. Eliminate FICA
  2. Federally funded Medicare — parts A, B & D, plus long-term care — for everyone
  3. Social Security for all
  4. Free education (including post-grad) for everyone
  5. Salary for attending school
  6. Eliminate federal taxes on business
  7. Increase the standard income tax deduction, annually. 
  8. Tax the very rich (the “.1%”) more, with higher progressive tax rates on all forms of income.
  9. Federal ownership of all banks
  10. Increase federal spending on the myriad initiatives that benefit America’s 99.9% 

The Ten Steps will grow the economy and narrow the income/wealth/power Gap between the rich and the rest.

MONETARY SOVEREIGNTY

We love every detail of the law

We love every detail, every aspect of THE LAW

We are not political hacks

—–/////—–

Minority women are most affected if abortion is banned or limited

If you are Black or Hispanic in a state that already limits access to abortions, you are far more likely than a white woman to have one

By Emily Wagster Pettus and Leah Willingham, Associated Press February 1, 2022

In Texas, they’re 59% of the population and 74% of those receiving abortions. The numbers in Alabama are 35% and 70%. In Louisiana, minorities represent 42% of the population, according to the state Health Department, and about 72% of those receiving abortions.

“Abortion restrictions are racist,” said Cathy Torres, a 25-year-old organizing manager with Frontera Fund, a Texas organization that helps women pay for abortions. “They directly impact people of color, Black, brown, Indigenous people … people who are trying to make ends meet.”

Schools often have ineffective or inadequate sex education.

If abortions are outlawed, those same women — often poor — will likely have the hardest time traveling to distant parts of the country to terminate pregnancies or raising children they might struggle to afford, said Roberts, who is Black.

—–/////—–

The Turnaway Study conducted at the University of California, San Francisco, shows that women experience harm from being denied a wanted abortion.* These findings have far-reaching implications for lawmakers, judges, health agencies, and others as they consider policies that restrict abortion access.

Denying a woman an abortion creates economic hardship and insecurity which lasts for years.

• Women who were turned away and went on to give birth experienced an increase in household poverty lasting at least four years relative to those who received an abortion.
• Years after an abortion denial, women were more likely to not have enough money to cover basic living expenses like food, housing, and transportation.
• Being denied an abortion lowered a woman’s credit score, increased a woman’s amount of debt, and increased the number of her negative public financial records, such as bankruptcies and evictions.

Women turned away from getting an abortion are more likely to stay in contact with a violent partner. They are also more likely to raise the resulting child alone.

Physical violence from the man involved in the pregnancy decreased for women who received abortions but not for the women who were denied abortions and gave birth.
• By five years, women denied abortions were more likely to be raising children alone – without family members or male partners – compared to women who received an abortion.

The financial well-being and development of children is negatively impacted when their mothers are denied abortion.

• The children women already have when they seek abortions show worse child development when their mother is denied an abortion compared to the children of women who receive one.
• Children born due to abortion denial are more likely to live below the federal poverty level than children born from a subsequent pregnancy to women who received the abortion.
• Carrying an unwanted pregnancy to term is associated with poorer maternal bonding, such as feeling trapped or resenting the baby, with the child born after abortion denial, compared to the next child born to a woman who received an abortion.

Giving birth is connected to more serious health problems than having an abortion.

• Women who were denied an abortion and gave birth reported more life-threatening complications like eclampsia and postpartum hemorrhage than those who received wanted abortions.
• Women who were denied an abortion and gave birth instead reported more chronic headaches or migraines, joint pain, and gestational hypertension than those who had an abortion.
• The higher risks of childbirth were tragically demonstrated by two women who were denied an abortion and died following delivery. No women died from an abortion.

Women who receive a wanted abortion are more financially stable, set more ambitious goals, raise children under more stable conditions, and are more likely to have a wanted child later.

Don’t think we Supreme Court Justices care only about punishing women, especially poor women or women of color.

We also plan to void all laws that aid immigrants and immigrants’ children,  birthright children, gays, Muslims, the elderly, and poor people.

We’re not going to feed them, educate them, house them, clothe them or help them to vote. We want them to be an impoverished, uneducated helpless underclass whom we can blame for crime and then imprison or enslave, like the good old days.

We’re pro-life except for guns and children already born.

And don’t kid yourself about us being independent arbiters. We’re as political as Chicago aldermen, and just as honest. (Hey, why would being married to a crazy white supremacist bar me from judging crazy white supremacists?)

In short, we will twist the words of the Constitution, while claiming we are “strict constructionists” (except for the 2nd Amendment, when we choose to ignore the first thirteen words).

We’ll also ignore changing times, so we can direct America into the most bigoted, narrow-minded, short-sighted, archaic, unAmerican, mean-spirited avenues available to us, so long as they don’t hurt the rich, white, and powerful.

We like the rich, white, and powerful, and the rich, white, and powerful like us (except for Justice Thomas who despises blacks even more than he despises whites).

We have lifetime appointments, so we can do anything we want. We love every detail of the law. Just don’t expect us to give a damn about you people, too.

First they came - Unitarian Universalist Service Committee

 

Rodger Malcolm Mitchell Monetary Sovereignty Twitter: @rodgermitchell Search #monetarysovereignty Facebook: Rodger Malcolm Mitchell

……………………………………………………………………..

THE SOLE PURPOSE OF GOVERNMENT IS TO IMPROVE AND PROTECT THE LIVES OF THE PEOPLE.

The most important problems in economics involve:

  1. Monetary Sovereignty describes money creation and destruction.
  2. Gap Psychology describes the common desire to distance oneself from those “below” in any socio-economic ranking, and to come nearer those “above.” The socio-economic distance is referred to as “The Gap.”

Wide Gaps negatively affect poverty, health and longevity, education, housing, law and crime, war, leadership, ownership, bigotry, supply and demand, taxation, GDP, international relations, scientific advancement, the environment, human motivation and well-being, and virtually every other issue in economics. Implementation of Monetary Sovereignty and The Ten Steps To Prosperity can grow the economy and narrow the Gaps: Ten Steps To Prosperity:

  1. Eliminate FICA
  2. Federally funded Medicare — parts A, B & D, plus long-term care — for everyone
  3. Social Security for all
  4. Free education (including post-grad) for everyone
  5. Salary for attending school
  6. Eliminate federal taxes on business
  7. Increase the standard income tax deduction, annually. 
  8. Tax the very rich (the “.1%”) more, with higher progressive tax rates on all forms of income.
  9. Federal ownership of all banks
  10. Increase federal spending on the myriad initiatives that benefit America’s 99.9% 

The Ten Steps will grow the economy and narrow the income/wealth/power Gap between the rich and the rest.

MONETARY SOVEREIGNTY

Fed Chair Jerome Powell, maybe pigs will fly

Federal Reserve chair vows to curb inflation with hikes that risk economic pain | The Japan Times

Powell: I know that inflation hurts, but I’m going to try to reduce inflation without causing a recession.

Sad family - Frog Financial Management

Alice: Our landlord said he has to raise our rent because his costs have increased. I can’t afford that. What can you do about it?

P: I’m going to raise interest rates.

Alice: But that will increase my landlord’s costs. Won’t that make the situation worse?

P: Raising interest rates is what I always do to fight inflation. It may not really work, but the politicians think it does, so it’s what I do

A: There’s a food shortage, so our food costs have gone up. I can’t afford to feed my children. What can you do about that?

P: I’m going to raise interest rates.

A: But that won’t help the food shortage. It only will make it harder for farmers to borrow., which will increase farmers’ costs? How will that lower food prices?

P: It won’t, but I also plan to sell off my T-bonds.

A: I don’t know much about T-bonds, but won’t that take money out of the economy? How does taking money out of the economy help the food shortage?

P: Beats me.

A. And the price of gas has gone up due to a shortage of oil. What are you doing about that?

P: I’m going to raise interest rates and sell off my T-bonds.

A: How does raising interest rates and selling off bonds increase gas supply?

P: It doesn’t, but it’s what I do. I think it’s supposed to cool the economy, which by definition, is a recession.

A: You want to cause a recession — a reduction in trade and industrial activity?

Federal Reserve chair vows to curb inflation with hikes that risk economic pain | The Japan Times

P: Yes, but please don’t call it a recession. Let’s call it “a cooling process.”

A: I’m unemployed. I easily could get a job, but when I pay FICA taxes and income taxes, and my employer pays his share of FICA and our healthcare insurance policy, my net take-home pay won’t cover inflation. What are you doing about that?

P: I’m going to raise interest rates and sell off my T-bonds.

Sad family - Frog Financial Management

A: Will that increase my net take-home pay?

P: Of course not. I can’t eliminate FICA, provide Medicare for All, or increase the Standard Deduction, all of which would increase your net pay.

I also can’t stop taxing Social Security benefits and IRA distributions to provide you with more long term net pay.

But, raising interest rates and selling off my bonds is what I do. It doesn’t work, but it makes me look prudent.

A: I understand there’s a shortage of computer chips, which causes a shortage of everything that uses computer chips, and those shortages cause the prices of almost everything electric to increase. What can you do about that?

P: The usual. I’m going to raise interest rates and sell off my T-bonds.

A: Again, how will that cure the shortage of computer chips?

P: It won’t. It only will make borrowing more expensive, and there’ll be less money in the economy, so people like you will have less money to spend. Fundamentally, I’m going to impoverish you to fight the shortage of goods and services that is causing inflation.

A. That’s crazy. Why make borrowing more expensive, which is recessive, and take money out of the economy, which also is recessive?

Recession isn’t the opposite of inflation. Deflation is the opposite of inflation. Your policies could cause stagflation, which is even worse.

The only way to reduce prices without a recession is to cure the causes of inflation: Shortages of key goods and services.

P: Sure, you know that, but the public doesn’t. They think I know what I’m doing.

A: While we’re talking about inflation, and everything being more expensive, the cost of medical insurance has gone up. There’s a shortage of doctors, nurses, and hospital beds, along with a shortage of medical equipment. What can you do about all those shortages that are causing medical inflation?

P:  Don’t you get it? I can’t cure shortages of anything — not shortages of food, nor oil, nor houses, nor computer chips, nor shipping, nor doctors, nor nurses, nor hospital beds — nothing. I have no control over the shortages that are causing inflation.

All I can do is cause a shortage of money, and that, together with all those other shortages will cause the economy to cool, in other words, a . . . .

A: Recession.

P: Or maybe, that stagflation thing. In short, I actually will cause a recession to cure inflation, but I won’t call it a recession. Let’s call it “prudent management.”

A: So if you can’t cure the inflation without causing a recession or, God forbid, a depression, who can?

Federal Reserve chair vows to curb inflation with hikes that risk economic pain | The Japan Times

P: Congress and the President have the power to cure the shortages that cause inflation, and not cause a recession or depression.

To cure the shortages of food, Congress can pay farmers to grow. Previously we’ve paid them not to grow, so prices would be higher.

Now we can reverse that.

A: And oil shortages, computer chip shortages, shipping shortages, and labor shortages?

P: Yes, I’ll let you in on a little secret. Congress and the President could pay to solve all those shortages, which would bring down prices. They have the power.

All I can do is fiddle with interest rates.

Sad family - Frog Financial Management

A: So why . . . ?

P: Today’s Congress is hopeless.

The Republicans don’t care about the economy. All they want to do is win elections.

So they act outraged about everything, but they don’t have actual plans to do anything about the economy.

Let’s face it, white supremacists, bigots, anti-vaxers, anti-gay, anti-immigrant, anti-Mulsim, and anti-black dummies storming Congress are not the kind of people likely to have created coherent plans to improve the economy.

The Dems want to grow the economy, but they think federal spending to cure shortages would cause, not cure, inflation.

Frankly, I don’t understand how curing the shortages of food, oil, computer chips, labor, etc., etc., etc,. could cause inflation, but the Dems are terrorized by the word “debt.”

A: But isn’t debt bad?

P: Nah, debt is bad only if you can’t afford to pay for it. But the federal government never can run short of its own sovereign currency, the U.S. dollar. It can pay off any size of debt instantly, without levying a penny in taxes.

A: So why don’t you just tell the American people all this? Why do you pretend you can cure inflation without causing a recession or depression when you know you can’t.

P: There’s an old story that comes to mind:

The King sentenced a man to death. The man pleaded, “If you spare me, I promise that in one year, I will teach this pig to fly.”

The King laughed and said, “I will give you one year. If the pig doesn’t fly, I will kill you myself.”

When the man’s friends asked him how he could make such a ridiculous promise, the man replied, “Much can happen in a year. The pig might die; the King might die, or I might die.

“Or who knows, I might teach the pig to fly.”

So much could happen in a year. We could go to war with Russia or China, and everyone would forget about inflation. A meteor could fall on Washington. COVID could act up again. The Supreme Court could outlaw gays.

Many things could divert our concerns from inflation.

And maybe pigs will fly.

In any event, Powell’s claims have bought him some lucrative time as Chair of the Fed (over $200K per year, plus many great benefits), and who knows, inflation might just go away, and he’d get accolades, whether or not we had a recession.

It worked for Paul Volcker.

Rodger Malcolm Mitchell
Monetary Sovereignty
Twitter: @rodgermitchell
Search #monetarysovereignty
Facebook: Rodger Malcolm Mitchell

……………………………………………………………………..

THE SOLE PURPOSE OF GOVERNMENT IS TO IMPROVE AND PROTECT THE LIVES OF THE PEOPLE.

The most important problems in economics involve:

  1. Monetary Sovereignty describes money creation and destruction.
  2. Gap Psychology describes the common desire to distance oneself from those “below” in any socio-economic ranking, and to come nearer those “above.” The socio-economic distance is referred to as “The Gap.”

Wide Gaps negatively affect poverty, health and longevity, education, housing, law and crime, war, leadership, ownership, bigotry, supply and demand, taxation, GDP, international relations, scientific advancement, the environment, human motivation and well-being, and virtually every other issue in economics. Implementation of Monetary Sovereignty and The Ten Steps To Prosperity can grow the economy and narrow the Gaps:

Ten Steps To Prosperity:

  1. Eliminate FICA
  2. Federally funded Medicare — parts A, B & D, plus long-term care — for everyone
  3. Social Security for all
  4. Free education (including post-grad) for everyone
  5. Salary for attending school
  6. Eliminate federal taxes on business
  7. Increase the standard income tax deduction, annually. 
  8. Tax the very rich (the “.1%”) more, with higher progressive tax rates on all forms of income.
  9. Federal ownership of all banks
  10. Increase federal spending on the myriad initiatives that benefit America’s 99.9% 

The Ten Steps will grow the economy and narrow the income/wealth/power Gap between the rich and the rest.

MONETARY SOVEREIGNTY

A quick quiz to see whether you are smarter than Fed Chairman Jerome Powell

Here is a quick quiz. Learn whether you are smarter than Federal Reserve Chairman Jerome Powell.

BACKGROUND:

We currently suffer from inflation, “a general increase in prices.”  The Fed’s task is to bring inflation down while not causing a recession, i.e. “an economic decline during which trade and industrial activity are reduced.”

Prices have increased for food, oil, cars and motorcycles, shipping,  labor, and household goods that use paper or cotton, such as diapers, incontinence supplies, sanitary napkins and tampons, and toilet paper, and labor.

THE QUIZ:

A. There is a shortage of food. The price of food has gone up. The solution should be either to:

  1. Force people to eat less, or to
  2. Help farmers grow more.

B. There is a shortage of oil. The price of oil has gone up. The solution should be either to:

  1. Force people to drive less and to heat their homes less, or to
  2. Help refineries produce more oil and help increase the availability of renewable energy.

C. There is a shortage of cars and motorcycles. The price of cars and motorcycles has gone up. The solution should be to:

  1. Force people to buy fewer cars and motorcycles, or to
  2. Help car manufacturers produce more cars and motorcycles.

D. There is a shortage of shipping ability (the “supply chain”). The price of shipping has gone up. The solution should be to:

  1. Force manufacturers and sellers to ship less, or to
  2. Help manufacturers and sellers to ship more.

E. There is a shortage of lumber. The price of lumber has gone up. The solution should be to:

  1. Force builders to build fewer homes and buildings, or to
  2. Help lumber growers grow more and/or help builders find substitutes for lumber.

F. There is a shortage of computer chips. The price of everything that uses computer chips has gone up. The solution should be to:

  1. Force manufacturers use fewer chips, or to
  2. Help computer chip manufacturers produce more chips

G. There is a shortage of household goods needing raw paper or cotton: diapers, incontinence supplies, sanitary napkins and tampons, and toilet paper. The solution should be to:

  1. Make people use fewer diapers, fewer incontinence supplies, fewer sanitary napkins and tampons, and less toilet paper, or to
  2. Help manufacturers produce more diapers, incontinence supplies, sanitary napkins and tampons, and less toilet paper.

H. There is a shortage of labor. The price of labor has gone up. The solution should be to:

  1. Force labor to accept lower wages, or to
  2. Help employers pay higher wages so more people will want to work.

THE ANSWERS:

If you think that in all cases, answer #2 is the correct way to cure inflation without causing a recession, you are correct. Congratulations, you are smarter than Fed Chairman Jerome Powell.

Incredibly, Powell thinks the answers all should be #1.

He says the economy is “overheated” (whatever that means), and the solution to inflation without a recession is to “cool” the economy (whatever that means).

So he raises interest rates and takes dollars from the economy.

By his actions, he is trying to force people to eat less, drive less, heat their homes less, ship less, build and buy fewer homes and buildings, buy less of everything that uses computer chips, use fewer tampons and less toilet paper, and work for lower wages,.

And these are the so-called “solutions” from Chairman Powell and his acolytes.

Really? Yes, really, That is exactly what “cooling the economy” means.

We know that Chairman Powell has dozens (hundreds?) of economists working for him, and we assume at least some of those economists see their own data, which we will share with you here:

This image has an empty alt attribute; its file name is image-1.png
Federal deficit spending growth (blue line) and recessions (vertical gray bars)

Every recession begins after a period of reduced federal deficit spending growth. Every recession is cured by a period of increased federal deficit spending growth.

Chairman Powell wishes to reduce federal deficit spending growth. What does history say about that?

If Chairman Powell truly wants to prevent a recession, he should recommend that Congress and the President spend to help cure the abovementioned shortages. The very last thing Powell ever should do is make curing the shortages more difficult.

All of the #2 answers require increased deficit spending by the federal government

For some unknown reason, Chairman Powell seems to believe that federal deficit spending causes inflation. We have no idea how he developed that belief since it is exactly opposite to his own statistics:

Here is the Federal Reserve graph comparing deficit spending with inflation:

Federal deficit spending (blue line) vs inflation (red line).

If federal deficit spending (blue line) caused inflation (red line), we would expect the blue and red lines to be essentially parallel. But that is nothing like what Chairman Powell’s own data show us.

According to the Fed’s data, federal deficit spending and inflation mostly move in opposite directions. Surely, nothing says that federal deficit spending causes inflation or “overheats” the economy.

The notion that “too much” federal deficit spending causes inflation is a myth, an illusion caused by the reaction of some governments to inflation.

Example: The notorious Zimbabwe hyperinflation was created when the government took farmland from farmers and gave it to people who didn’t know how to farm. The predictable result: A food shortage. The price of food skyrocketed.

Rather than spend to help farm owners grow more food, the government simply printed currency in higher denominations. This did nothing to cure the food shortage and its resultant inflation, but it created the illusion that currency printing caused the inflation.

All hyperinflations in history have followed the same scenario: Shortages cause higher prices; the government prints currency rather than curing the shortages.

Deficit spending to increase supplies of goods and services, instead of merely printing currency, is the way to cure inflation without causing a recession. Deficit spending prevents recessions and grows the economy, which is exactly what it did during the COVID crisis.

Were it not for federal deficit spending, we would have had a COVID depression in 2020 and 2021.

Today, the federal government should increase deficit spending to prevent recession, while using those additional dollars to encourage more farming, oil and gas drilling and refining, renewable energy production, sales of cars and motorcycles, home building, lumber growing and harvesting, and lumber-substitute development, computer chip manufacturing, and more people to join the workforce.

The latter can be accomplished by ending the FICA tax and raising the minimum standard deduction. Additionally, the federal government should fund Medicare for All, which would reduce employment costs for employees and employers.

Further, because the U.S. federal government is Monetarily Sovereign, deficit spending is not “paid for” by federal taxes. The U.S. federal government pays for all its spending by creating new dollars, ad hoc.

Even if the federal government collected $0 in taxes, it could continue to deficit spend, forever. (A little secret: The federal government destroys all the tax dollars it receives, creating new dollars as needed.)

The purpose of federal taxing is not to provide the government with the dollars it spends, but rather to control the economy by taxing what the government wishes to discourage, and by giving tax breaks to what it wishes to encourage.

In the unlikely event that America can escape inflation without suffering a recession, it will not be because of what Chairman Powell is doing. It will be despite what Chairman Powell is doing.

Fasten your seat belts. Powell doesn’t know what he is doing.

[No rational person would take dollars from the economy and give them to
a federal government that has the infinite ability to create dollars.]

Rodger Malcolm Mitchell
Monetary Sovereignty
Twitter: @rodgermitchell
Search #monetarysovereignty
Facebook: Rodger Malcolm Mitchell

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THE SOLE PURPOSE OF GOVERNMENT IS TO IMPROVE AND PROTECT THE LIVES OF THE PEOPLE.

The most important problems in economics involve:

  1. Monetary Sovereignty describes money creation and destruction.
  2. Gap Psychology describes the common desire to distance oneself from those “below” in any socio-economic ranking, and to come nearer those “above.” The socio-economic distance is referred to as “The Gap.”

Wide Gaps negatively affect poverty, health and longevity, education, housing, law and crime, war, leadership, ownership, bigotry, supply and demand, taxation, GDP, international relations, scientific advancement, the environment, human motivation and well-being, and virtually every other issue in economics. Implementation of Monetary Sovereignty and The Ten Steps To Prosperity can grow the economy and narrow the Gaps:

Ten Steps To Prosperity:

  1. Eliminate FICA
  2. Federally funded Medicare — parts A, B & D, plus long-term care — for everyone
  3. Social Security for all
  4. Free education (including post-grad) for everyone
  5. Salary for attending school
  6. Eliminate federal taxes on business
  7. Increase the standard income tax deduction, annually. 
  8. Tax the very rich (the “.1%”) more, with higher progressive tax rates on all forms of income.
  9. Federal ownership of all banks
  10. Increase federal spending on the myriad initiatives that benefit America’s 99.9% 

The Ten Steps will grow the economy and narrow the income/wealth/power Gap between the rich and the rest.

MONETARY SOVEREIGNTY