Why is inflation so hard to defeat?

I come from Chicago, and so am, by DNA, a Bears fan.

We Bears fans often ask, “Given that they repeatedly have high draft choices, why are their teams so bad, year after year?” (Cleveland Browns fans can empathize.)

The answer can be stated in two words: Bad leadership. And that also answers the title question, “Why is inflation so hard to defeat?” Bad leadership.

Here are quotes from the Committee for a Responsible Federal Budget (CRFB), which usually parrots the propaganda of the very rich:

Inflation is currently surging at the fastest rate in more than four decades, with the Consumer Price Index (CPI) up 8.2 percent over the past year and Personal Consumption Expenditure (PCE) price index up 6.2.

By comparison, the Federal Reserve (“the Fed”) generally targets 2 percent annual PCE inflation.

In general, the federal government has two types of tools available to fight inflation. Monetary policy, conducted by the Federal Reserve, can raise interest rates.

Or fiscal policy, controlled by the Congress and President, can adjust taxes and spending.

Immediately, they limit possible tools to those that impact the “not-rich” and widen the Gap between the rich and the rest. It’s known as “Gap Psychology,” the human desire to widen the income/wealth/power Gap below you and to narrow it above you.

“Raise Interest Rates” Impacts homebuyers who seek mortgages.

Adjust Taxes: “Adjust” is a disingenuous word for “raise.” When taxes are raised, the rule always includes exceptions and loopholes for the rich, not for the rest of us.

Adjust Spending: Here, “adjust” means “cut.” Deceptively, the CRFB uses one word to mean two opposite things (just like their use of the word “adjust.”.

When federal spending is cut, benefits to the middle and the poor always suffer. The false “need” to cut spending will be reflected in the Big Lie in economics that Social Security and Medicare are “running short of dollars” and that all aids to the poor, students, renters, etc., are “unaffordable.” Utter nonsense.

Specifically, Congress and the President can use their tools to assist the Federal Reserve in its efforts to fight inflation. Using fiscal policy in this situation can:

  • Ensure all federal actions are rowing in the same direction;
  • Reduce recessionary pressures and support stronger economic growth;
  • Diversify and limit the economic pain from inflation-reducing actions; and
  • Reduce the budgetary cost of fighting inflation.

The CRFB wants everyone to “row in the same direction.” Lovely words. But it also wants to “support stronger economic growth” and “limit economic pain” while raising taxes and cutting spending.

What the CRFB means by “rowing in the same direction.”

It is impossible to support economic growth and limit economic pain while raising federal taxes and cutting federal spending. Absolutely, 100% impossible.

Federal Reserve in fighting inflation. Through deficit-reducing tax and spending changes, they can help temper demand, boost supply, and directly or indirectly lower prices in the economy.

Translation of the above sentence: “By taking dollars out of the economy, they can take dollars from consumers, reduce supply, and drive the economy into a recession.

Congress and the President should act soon to pass legislation that helps fight inflation on all of these fronts.  

Key to any legislation will be deficit reduction, which 55 of the nation’s top economists and budget experts recently explained is one tool in helping to ease inflationary pressures.

Translation: “55 of the nation’s top economists say to ease inflation, we must plunge the economy into a recession. (And never mind about stagflation, which we have no idea how to fight.) This is known as “austerity,” which was attempted in the euro nations. [From the Harvard Business Review, September 28, 2018]:

Eurozone governments – especially those in struggling Southern European countries (Spain, Greece, or Portugal) – switched dramatically towards austerity in the years 2010-2014.  

Most experts now agree that these policies had such damaging and persistent negative effects on growth that they were self-defeating.

Governments were reducing spending in order to bring their debt levels under control. But GDP fell so much that . . . debt became even less sustainable than before the austerity measures were implemented.

Consider that euro nations are monetarily non-sovereign, like you and me. Their debt is like my debt and yours. We are not Monetarily Sovereign, so we don’t have the unlimited ability to create dollars.

They had to cut debt because the Monetarily Sovereign EU wouldn’t support them. The Monetarily Sovereign U.S. doesn’t and shouldn’t cut “debt” (which isn’t real debt) or deficits, and there is no reason for the U.S. to undergo the horrors of austerity.

But that is exactly what the “55 top economists” recommend.

At a minimum, Congress and the President should stop adding to the deficits, so that fiscal policy is not worsening inflation.

Translation: “At a minimum, Congress and the President should stop adding dollars to the private sector so that a recession is assured.”

In addition to helping contain inflation, thoughtful deficit reduction can also help to grow the economy, reduce geopolitical risks, improve fairness and efficiency of the budget and tax code, and put the national debt on a more sustainable path.

Translation: “In addition to helping cause a recession, mindless deficit reduction can also help to shrink the economy, exacerbate geopolitical risks, have no effect on the fairness and efficiency of the budget and tax code, and put the nation on a path to a recession or depression.

When federal debt growth (green line) shrinks, we have recessions (vertical gray bars), which are cured by federal debt growth increases.

Inflation in the United States has been elevated for 22 months and shows few signs of abating.

High inflation originated from a mismatch between total demand and supply in the economy – largely as a result of constraints from the COVID-19 pandemic and an aggressive fiscal and monetary policy response. 

Translation: Inflation has been growing because COVID caused reductions in the supply of oil, food, computer chips, shipping, labor, and other goods and services. The resultant scarcities caused prices to rise.

The Federal Reserve has already begun to act, raising interest rates by three percentage points since March of 2022, beginning to shrink its balance sheet, and signaling further tightening – with rates headed toward 4.6 percent by the end of 2023 – until inflation is brought under control.

Translation: The Federal Reserve’s massive interest rate increases have done nothing to increase the supplies of oil, food, etc., so they have done nothing to cure inflation.

Economists believe that monetary policy should play the lead role in stabilizing the economy because of the Federal Reserve’s ability to act quickly and effectively to adjust interest rates, using its technical expertise and political insulation to balance competing priorities.

In this case, the Fed can expeditiously and gradually raise interest rates and shrink its balance sheet – based on real-time data – to encourage savings, discourage large purchases, and reduce wealth-driven consumption.

And as we can see, the Fed’s expeditious and gradual interest rate raise has cured inflation. Oh, it hasn’t because it does nothing to remedy shortages?

Would someone please tell the CRFB and the 55 top economists? And by the way, “Encourage savings, discourage large purchases, and reduce wealth-driven consumption” describes a recession.

Yet even as the Fed is better equipped to bring down inflation, doing so is not without its challenges.

Higher interest rates put upward pressure on the unemployment rate and can also lead to financial instability – especially when rates are increased well above the long-term neutral rate (believed to be 2.5 to 3.0 percent).

Indeed, some recent research suggests the inverse relationship between inflation and unemployment described under the Phillips curve might be particularly strong now, suggesting a high “sacrifice ratio” whereby reductions in inflation require large increases in unemployment.

The CRFB has it all backward. High prices don’t cause unemployment. Unemployment occurs because shortages of goods and services discourage hiring. You don’t hire more people when you can’t produce, ship, or service.

In acting alone to fight inflation, there is a substantial risk and perhaps likelihood the Fed’s actions will spur an economic recession.

Finally, one factual statement from the CRFB. More than a “substantial risk. It borders on certainty.

The Federal Reserve has only a limited set of tools to fight inflation, which work by boosting interest rates.

While generally effective in reducing inflation, higher interest rates can also impose substantial pain on the housing and labor markets, reduce investments that promote long-term growth, and take a long time to affect the economy.

Translation: Replace the word “effective” with “ineffective and economically harmful.” The rest of the sentence is correct.

For these and other reasons, economists and policymakers have long supported supplementing monetary policy with fiscal stimulus to fight recessions.

Elemendorf and Furman, for example, argue policymakers should sometimes use fiscal policy even though monetary policy is superior.

Fiscal stimulus (i.e., federal deficit spending) always (not “sometimes”) is necessary. It should be targeted toward reducing shortages: More federal spending to aid oil exploration and production, to aid and encourage food production, and to encourage hiring.

The first step: The FICA tax should be eliminated, a monumental and useless drag on the economy. The federal government neither needs nor even uses FICA dollars for anything. It destroys them upon receipt.

When FICA dollars are sent to the Treasury, they come from the nation’s M1 money supply measure. But when they reach the Treasury, they cease to be part of any money supply measure. They effectively are destroyed.

There is no measure for the government’s money supply because the government has infinite money.

Specifically, spending increases and tax cuts work to boost demand in the near term, while high levels of projected deficits and debt can boost inflation expectations.

One standard measure of an economy is Gross Domestic Product (GDP). It is a measure of spending. The CRFB admits that federal spending increases will increase GDP.

And what will federal spending decreases do? Right, they will decrease GDP.

“Recession” is a decline in GDP for two or more quarters, and a depression is a decline in GDP for two or more years. Unwittingly, the CRFB and the 55 top economists have admitted recommending a recession or depression as the cure for inflation.

This is especially true if markets believe the government will attempt to inflate away a portion of its debt.

The notion of the federal government inflating away its debt is nonsense on several levels.

I. The federal government’s “debt” is nothing like personal or local government debt. It’s deposits into privately owned T-security accounts, which the government pays off upon maturity simply by returning the dollars.

The government neither uses nor even touches those dollars. You, as a depositor, own them.

The government spends using dollars newly created, ad hoc. The federal government never can run short of its sovereign currency.

II. Inflation does not affect the government’s ability to return the dollars in T-security accounts. Federal interest rate increases affect the number of dollars in those accounts, but the number does not affect the government’s ability to return those dollars.

No matter how large the “debt” (that isn’t a debt), the government just returns the dollars. It’s like a safe deposit box. No matter the value, the contents belong to you, and the Bank simply returns them.

III. The CRFB’s comments demonstrate their confusion between federal (Monetarily Sovereign) debt vs. state government and personal (monetarily nonsovereign) debt.

It’s the classic case of using one word with two unrelated meanings.

Personal debt comes from borrowing, wherein the borrower needs the dollars for some use. Federal “debt” comes from the federal government’s desire to stabilize the dollar by providing a safe haven for unused dollars.

The government neither needs nor uses those dollars. It has the unlimited ability to create dollars for any purpose.

Contrary to popular myth, the U.S. federal government never borrows U.S. dollars. Same reason: It has the infinite ability to create new dollars. Additionally, those T-security accounts help the government control interest rates.

Sadly, the CRFB either doesn’t understand economics or deliberately misleads its readers on behalf of the rich. Their hope might be to discourage the “not-rich” from asking for benefits, thereby increasing the Gap and making the rich comparatively more affluent.

Enacting deficit reduction during a period of high inflation can also help to reassure markets that elected officials are committed to responsible policy and won’t attempt to undermine Federal Reserve tightening in the future should inflation persist.

What can one say about the above nonsense? Deficit reduction (aka subtracting dollars from the economy) during high inflation will assure the markets that elected officials are committed to causing a recession or a depression.

While higher interest rates help to fight inflation, they also increase the risk of a recession by weakening labor markets and threatening financial stability.High interest rates also discourage personal and business investment, which in turn slows long-term income and economic growth.

Right, CRFB, except for the false “help fight inflation” part. But what happened to the CRFB’s “row in the same direction” philosophy?

Following their warning about the risk of recession, the CRFB published many word-salad paragraphs that could be summarized thus: “We should increase deficit spending without increasing deficit spending” and do all that to “stimulate the economy without stimulating the economy.”

Got it?

Of course, they had to finish with the Big Lie in economics that the federal government’s spending is constrained by tax income. Like the Bank in a Monopoly game, the federal government doesn’t need tax dollars. It can create all the new dollars it needs.

Even if all tax collections totaled $0, the federal government could continue spending forever.

Given the risks and threats from deficits and debt, substantial deficit reduction is needed even absent high inflation.

Surging prices makes deficit reduction more necessary and urgent while dramatically reducing any macroeconomic risks associated with near-term deficit reduction.

Wha? Surging prices . . . reduce risks of near-term recession?? Where did that idea come from?

Broke Sam Stock Illustration - Download Image Now - American Culture, Bankruptcy, Cartoon - iStock
The lie they want you to believe.

It’s almost as wrong-headed as their final paragraph:

Rather than continuing to enact policies that increase deficits and worsen inflationary pressures, Congress and the President should act swiftly to enact deficit-reducing legislation that would help the Federal Reserve fight inflation today, while putting the national debt on a more sustainable path for years to come.

So there it is folks. Allowing the world to deposit dollars into T-security accounts is not sustainable because . . . well, no one knows why.

It’s just what the rich want you to believe, so you will be docile and obedient when they tell you they have to cut Social Security, Medicare, ACA, aid to students, assistance to the poor, and, oh yes, raise your taxes.

The rich become more prosperous by widening the Gap between the rich and the poor.

Why is inflation so hard to defeat? We Bear fans understand the concept perfectly. Bad leadership.  

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.


14 thoughts on “Why is inflation so hard to defeat?

  1. Even the supposed “success” story of austerity in Canada in the 1990s was not all it was cracked up to be. Their secret? They 1) devalued their currency, and 2) rode the global economic tidal wave of good fortune, enabling them to temporarily enjoy economic growth despite austerity. And they ultimately paid the price of budget cuts in their healthcare system. You know, those long wait times that get blamed on the mere fact of single-payer Medicare for all, but curiously did not exits until after austerity began.

    Liked by 1 person

      1. Nor was it necessary for Canada either, who is also Monetarily Sovereign as well. Their excuse was that they got credit rating downgrades, and the American excuse at the time (for our own deficit reduction) was “bond vigilantes”, but neither excuse really holds water for a Monetarily Sovereign entity with infinite money.


        1. The whole credit rating fiasco was hilarious. The U.S. government also got a downgrade. Imagine a ratings company claiming a business has better credit than do the Monetarily Sovereign U.S. or Canadian governments.

          By tapping a computer key, each government instantly could pay a trillion-dollar invoice and then merrily continue spending. The ignorance of Monetary Sovereignty leads to some strange shit.


  2. I do have a question, Rodger. As for how to cure stagflation, you yourself said back in 2008, and I quote:

    “There is one, and only one, solution to stagflation: Raise interest rates to cure the inflation, and government deficit spending to cure the stagnation.” (Simultaneously, I am assuming)

    Do you think that such a combo would work now? Of course, austerity would be a very bad idea, but at least this combo would increase deficit spending. Or is it like stepping on the gas pedal and brake pedal at the same time?

    Liked by 1 person

    1. Thanks for being a good reader. To paraphrase the song, “Oh, it’s a long, long time from 2008 to 2022.”

      I was wrong in 2008, more specifically, half wrong. I since have learned that raising interest rates does not cure the fundamental cause of all inflations: Scarcity of key goods and services. Deficit spending still cures stagnation, and if it’s directed toward curing scarcities, it also cures inflation.

      Fortunately, for the human species, we learn over time.

      Liked by 1 person

      1. Thank you, Rodger, and you’re very welcome 🙂

        Looks like you are now on the same page as MMT, Ellen Brown, and the American Monetary Institute on the issue of the utter futility of raising interest rates to cure inflation, even if you may disagree on other things. When all four of you agree on something, it clearly has to be true. And I believe that the late Margrit Kennedy probably felt the same way as well.

        Ironically, my erstwhile gung-ho support for raising interest rates to fight inflation until just a few months ago, which I now regret, was inspired by you originally, as I originally opposed it when I support MMT before I discovered MS. I am thus glad that the idea of dependence on raising interest rates was finally jettisoned as a plank of MS, as that was always an inexplicable asterisk hanging over the otherwise great theory. Thank you for further improving and refining MS, Rodger.


        1. Most false claims contain smidgeons of truth. Raising interest rates does increase the exchange value of the dollar, which is anti-inflationary. Unfortunately, the effect is too weak and doesn’t get to the bottom of the problem, scarcity. It’s something like taking a cough drop for COVID.


          1. Sadly, despite all evidence to the contrary, MMT also believes federal deficit spending causes inflation. It’s on are where Monetary Sovereignty and MMT diverge.

            Michael Lawrence and Thomas Homer-Dixon seem not even to understand MMT, for they write about “governments of wealthy countries . . . borrowing with abandon. They don’t differentiate between Monetarily Sovereign nations (U.S., Canada, Australia, et al) and monetarily non-sovereign nations (euro nations). MS nations do not borrow. The U.S. does not borrow dollars. Never.

            Those T-securities, wrongly termed borrowing, are the acceptance of deposits into privately owned T-security accounts. The federal government does not touch the dollars in those accounts. (Think of safe-deposit boxes. The bank doesn’t touch those contents, either.)


  3. “Most false claims contain smidgeons of truth. Raising interest rates does increase the exchange value of the dollar, which is anti-inflationary. Unfortunately, the effect is too weak and doesn’t get to the bottom of the problem, scarcity. It’s something like taking a cough drop for COVID.”

    Well-said, Rodger.

    Liked by 1 person

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