Exactly the wrong way to cure inflation, but the best way to cause a recession.

On May 20th, we posted, “”First do no harm.” How ‘Dr.’ Jerome Powell will worsen the inflation and cause a recession.”

Bingo! 

Today, Powell and his cronies debate whether to call where we are “a recession.” He’s worried about semantics as the economy tanks.

Please let me know if there is a more damaging, less effective way to fight inflation than what Powell now is doing.

Consider this: What action should the government take when there is a food shortage, causing food prices to rise?

1. Government price controls over food? Or,
2. Reduce federal benefits to the poor, so they will buy less food, thus curing the shortage. Also, reduce farm aid, so there will be even less food produced? Or, 
3. Fund federal aid to farmers so they can produce more food and give people money so they can buy food?

Number 1 never works. It always leads to more shortages and a reduction in Research and Development, forcing even more shortages.

A classic example is rent controls, which reduce the number of new apartments and cause existing apartments to fall into neglect.

Yet politicians without knowledge of history or economics often turn to price controls.

Number 2 leads to recessions and depressions. Today, we have shortages of oil, food, housing, computer chips, and labor, and these shortages are causing prices to rise, what we call “inflation.” All those who are not rich starve.

Amazingly, the Federal Reserve has chosen solution #2. Raising interest rates makes many goods and services even less affordable, starving the poor and middle classes to cure inflation. Higher interest rates also make increased production more difficult, exacerbating shortages.

The federal government should provide aid to industries whose products are in short supply and to consumers so they can afford those products. Approach #3 is the only correct approach. Cure the shortages, and you cure the inflation.

• • Shortage of food: Federal aid to farmers. Education. Equipment. Insurance. Tax breaks.
  • Shortage of oil: Aid to drillers. Aid to electric car/truck makers. Support for R&D alternative energy
  • Shortage of labor: Eliminate FICA. Reduce tax rates on salaries. Provide Medicare for All.
  • Shortage of lumber: Aid growers. R&D for alternatives. Tax breaks for alternatives
  • Housing shortage: Aid home & apartment builders. Cut interest rates. Tax breaks for renters.

Notice how curing inflation, i.e., fixing shortages, requires more federal spending, not less.

Of course, the expenditures must be targeted toward eliminating the scarcities.

Powell’s interest rate increases only make reducing shortages more difficult.

Those higher rates impoverish consumers and hinder the ability of suppliers to produce.

Powell has found the ultimate way to increase shortages, worsen inflation, and cause a recession.

In effect, Powell is applying leeches to cure anemia.

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