“First do no harm.” How “Dr.” Jerome Powell will worsen the inflation and cause a recession

 

“Dr.” Jerome Powell: I am going to cure your anemia by applying leeches to drain your blood.

A medical doctor will tell you, if you want to prevent and/or cure a disease, it helps to understand and address the cause(s) of the disease. But first, do no harm.

And to identify and determine the cause of the disease, look at the symptoms.  Today’s economy is diseased, and the symptom is inflation, which can precede a recession.

Inflation is a general increase in prices. 

Every price increase can be attributed to scarcity. Barring government interference (i.e,. price controls, taxes, etc.) market prices do not rise on any product when there is a surfeit of that product.

“Dr. Powell’s treatment for inflation are:

  1. Raise interest rates
  2. Reduce money growth.

And he wishes to do this without causing a recession .

Today’s inflation is caused by multiple scarcities: energy, food, supply chain, fertilizer, computer chips, lumber, baby formula,  rare earth elements, labor, etc., etc. 

Powell believes that the inflation is caused by the federal government’s massive spending to prevent a COVID recession. In that regard, the spending worked.

Because of massive federal spending, COVID was able to cause only the briefest possible recession: Two quarters.

COVID killed almost 1 million Americans and hospitalized many millions more. Yet the federal government was able to limit the drop in GDP to just two quarters. The 4th quarter of 2019 and the first quarter of 2020.

This was an amazing feat, and will be remembered as a great financial success for the government..

Why did federal spending limit what otherwise would have been a long, harsh depression? You might remember that the Great Depression ended in 1941, the same year we entered World War II. 

That was not a coincidence. Recessions and depressions are symptoms of shortages, and most shortages are symptoms of a lack of money.

Look again at the partial list of today’s shortages, and see what the causes are:

  1. Energy: Lack of federal money spent on oil drilling and refining, exacerbated by the lack of money spent on the development of alternative energy sources (wind, nuclear, hydro, geothermal, solar. )
    America has vast deserts and other areas that receive plentiful sunshine, perfect for solar energy.
  2. Food: Lack of federal money spent to resolve supply chain issues, labor issues, factory issues, workers’ inability to travel to jobs, fertilizer costs, import restrictions. (See: 5 Reasons Why a Global Food Shortage is Becoming a Real Concern)
  3. Fertilizer and many other products: A big culprit is lack of money to create a safe, viable supply chain. Our current ports, truck lines and other segments of the supply chain all are at the minimum level required for normal times, with no backup. This always was an existential risk for the U.S. economy,
    The Midwest and shore areas of America are good locations for wind energy.
    and now COVID has disrupted the entire length of the chain. To protect America, the government should help strengthen the chain.
  4. Computer chips: Most are produced in foreign nations. This is too vital a product to rely on foreign production. The federal government should provide money incentives for domestic production to safeguard our economy.
  5. Labor: People won’t work for low salaries. Federal spending FICA and providing Medicare for All would give businesses financial room to raise salaries. Additional tax incentives for salaries would encourage businesses to raise pay.

None of the above problems will be addressed by “Dr. Powell’s” prescription of interest rate increases or by federal spending decreases. He is applying leeches to cure anemia. 

Chairman Powell thinks the problem is too much money in the economy, when exactly the opposite is true. Too little money is available to cure the shortages that are the real cause of inflation.

The economy is not “overheated,” as Powell claims. Despite trillions having been spent, the current problem is lack of continued spending.

When COVID hit us, the federal government’s spending was good economic medicine that addressed the symptoms and prevented a deep recession, but the underlying shortage “diseases” remain.

Powell wants to discontinue the medicine because he wrongly believes, despite ample evidence, that federal spending causes inflation and recession.

This image has an empty alt attribute; its file name is image-3.png
The blue line shows changes in federal deficit spending. Diagonal lines show reduced deficit trends leading to recessions. The vertical gray bars are the recessions caused by reduced deficit growth — exactly what Powell wants to do.

The trend lines show that recessions begin after periods of reduced federal deficit growth. Recessions are cured by increased federal deficit growth.

Inflation (red) vs. federal deficit spending (blue). Data do not indicate that federal deficit spending causes inflation.

Federal deficit spending does not cause inflations or recessions. The opposite is true. The lack of federal spending causes inflations and recessions.

In Summary, Chairman Powell figuratively is applying leeches to cure anemia. He is doing exactly the wrong things to cure inflation and to prevent recessions. 

Increasing interest rates will not cure the problem that actually causes inflation: Shortages of key products and services. Nor will cuts to federal deficits prevent a recession.

The Fed cannot do what it was not designed to do. Congress, not the Fed, can and must act to cure the shortages that cause inflation.

Democrats beware: Powell’s policies will worsen the inflation and cause a deep recession, and unless Congress acts to cure the shortages, we will have a depression.

And Democrats will receive the blame.

//////////////////////////////

[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

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

2 thoughts on ““First do no harm.” How “Dr.” Jerome Powell will worsen the inflation and cause a recession

  1. Ever since the Great Recession of 2008, the federal government has been running huge deficits (see: https://rodgermmitchell.files.wordpress.com/2022/05/image-5.png?w=1024), and interest rates remained low. The result: Inflation had been generally within the Fed’s 2.5% target.

    Shortages of key goods and services cause inflation The last decade proved that deficits and low rates don’t cause shortages or inflation. But Powell is blind to history. Now suddenly, to cure inflation, a clueless and desperate Powell wants to raise interest rates and cut deficits. It’s insanity.

    With zero data to support his beliefs, Powell is convinced that federal spending has caused the economy to be “overheated” (a non-scientific term having no specific meaning, but is spoken and respoken repeatedly by those pretending to understand economics).

    Like

  2. If our leaders are supposed to understand economics, but really do not, and the general public certainly does not, then this is the blind leading the blind. Bush the Elder said the economy is in freefall and that was 30 years ago. I think of freefall as being “free to fall without control.” like a weaving drunk. Monetary and fiscal tools are argumentative and/or slow to take effect. There’s no right here, right now solution. This is why I feel the big money world clings to their selfish method of control.
    The alternative must therefore be an all-volunteer, sans money world where you do what needs to be done w/o worry of survival. No doubt Big Money will refuse to yield, until it becomes clear their deadly, selfish game is over.

    Like

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