AI discusses the cause of inflation. Here’s an addictive example you can enjoy yourself.

Want to have a discussion about anything — ANYTHING —with an intelligent person? How about a discussion with a seemingly intelligent, seeming person?

Here’s a discussion I had with a pretty good facsimile, an exercise you can enjoy yourself by clicking the link.

We discussed the cause of inflation. Warning, it’s addictive. Unlike the humans I try to reason with, the computer never gets angry or even impolite. It always acknowledges points made. And its opinions are not its own.

Sadly, it doesn’t learn from arguments. It just keeps repeating what it already has been told by its references.

Rodger Mitchell: It widely is believed that “excessive federal spending causes inflation,” yet when I try to find an example of excessive federal spending causing inflation, I receive the explanation that, “It’s really a combination of factors of which excessive federal spending is one factor and not even an immediate factor.

“It could be a delayed part.”

Sadly, that could be said of anything. I could make the same statement about phases of the moon or children born with red hair — as being only one factor and not even an immediate factor in inflation.

**A computer-generated illustration of: A computer on a stage, talking into a microphone.”**

In short, federal spending is no more a demonstrable factor than is a sign of the zodiac.

Chat GPF: The relationship between federal spending and inflation is a complex and debated topic among economists.

While some people hold the belief that excessive federal spending directly causes inflation, the reality is more nuanced and not as straightforward as a simple cause-and-effect relationship.

Inflation is a general increase in prices over time, and it can be influenced by a variety of factors, including monetary policy, fiscal policy, supply and demand dynamics, international trade, productivity levels, and more.

Excessive federal spending can potentially contribute to inflation, but it is not the sole or immediate factor responsible for it.

When economists explain that excessive federal spending is only one factor and not an immediate one in inflation, they are acknowledging the multifaceted nature of inflation.

They are suggesting that while federal spending can have an impact on inflation, it needs to be considered alongside other variables that influence price levels.

Simply blaming federal spending without considering other factors would oversimplify the issue.

It is important to note that economic phenomena, such as inflation, are typically the result of multiple interacting factors. This complexity makes it challenging to isolate and definitively prove the direct causal relationship between any single factor and inflation.

Therefore, it is not accurate to compare federal spending’s role in inflation to unrelated factors like phases of the moon or hair color, as the former is subject to economic analysis and empirical research.

**Computer-generated image of: “A computer pondering a question in economics.”**

Economists continue to study the relationship between federal spending and inflation, and there are differing views within the field.

Some argue that excessive government spending, particularly when not matched by increased productivity or accompanied by monetary expansion, can contribute to inflationary pressures.

Others argue that other factors, such as changes in private sector spending, global economic conditions, or shifts in supply and demand, have a more significant influence on inflation.

In summary, while excessive federal spending can potentially contribute to inflation, it is just one factor among many.

The complexity of economic systems and the multitude of factors influencing inflation make it difficult to attribute it solely to federal spending. Economic analysis and research are ongoing to better understand these dynamics and their interrelationships.

Rodger Mitchell: It’s not terribly “challenging to isolate and definitively prove the direct causal relationship between any single factor and inflation.” Inflations historically are caused by shortages, usually shortages of oil or food. I see many parallels through history between oil or food shortages and inflation.

I do not see the same parallels between federal spending and inflation. Can you provide an example of an inflation that did not result from an oil or food shortage, but instead resulted from excessive federal spending?

ChatGPT: While it is true that supply shocks, such as oil or food shortages, have historically played a role in triggering inflationary episodes, it would be incorrect to assert that inflation is exclusively caused by these factors. Inflation can also arise due to other factors, including excessive government spending.

One example often cited as an instance where excessive federal spending contributed to inflation is the case of Zimbabwe in the late 2000s. The Zimbabwean government embarked on a policy of significant fiscal expansion, primarily through extensive money creation, to finance its expenditures.

This resulted in a substantial increase in the money supply, leading to hyperinflation.

During this period, Zimbabwe experienced a severe economic crisis, with skyrocketing prices, rapid depreciation of the currency, and a loss of confidence in the monetary system.

Your Creation — **Four computer generated images of: “A computer laughing at a joke”**

While there were other factors at play, such as economic mismanagement and a decline in agricultural productivity, excessive government spending and the consequent increase in the money supply were key drivers of inflation in Zimbabwe.

It’s important to note that this example is just one case among many, and the relationship between federal spending and inflation is not always straightforward.

The impact of government spending on inflation can vary depending on several factors, including the overall state of the economy, fiscal and monetary policies, and the credibility of the government in managing its finances.

In many instances, inflation may result from a combination of factors rather than being solely attributable to a single cause.

It is also worth noting that the effects of excessive government spending on inflation may not be immediate but can manifest over time as the economy adjusts to the increased money supply and the potential distortionary effects of government interventions.

In summary, while oil or food shortages have historically been associated with inflation, excessive federal spending can also contribute to inflationary pressures under certain circumstances.

The example of Zimbabwe illustrates how a combination of factors, including excessive government spending and monetary mismanagement, can lead to inflation.

However, it is important to recognize that the relationship between federal spending and inflation is complex, and various factors can interact to influence price levels in an economy.

Rodger Mitchell: The Zimbabwe inflation was caused by a food shortage. Farmland was taken from farmers and given to non-farmers. The result: Food shortage and inflation.

The money “printing” was a response to, not a cause of, inflation.

ChatGPT: While it is true that Zimbabwe’s land redistribution policies and subsequent disruptions in agricultural productivity were significant contributors to the country’s hyperinflation, it is essential to note that excessive money creation by the central bank played a crucial role as well.

The Zimbabwean government resorted to financing its budget deficit by effectively printing money, leading to a significant expansion of the money supply.

This, combined with the loss of agricultural output, created a situation of excess money chasing limited goods, fueling hyperinflation.

The land redistribution policy disrupted agricultural production by displacing experienced farmers and replacing them with individuals who lacked the necessary skills, resources, and incentives to maintain productive farms. This resulted in a decline in food production, contributing to shortages and price increases.

However, it is important to understand the sequence of events. The initial cause of the inflationary spiral in Zimbabwe was the disruption in agricultural productivity due to the land redistribution policy.

As the economy faced shortages of food and other goods, the government responded by printing money to finance its spending obligations, exacerbating the inflationary pressures.

Inflation is a complex phenomenon, and it rarely has a single cause. In the case of Zimbabwe, both the land redistribution policy and the subsequent monetary expansion played significant roles in the hyperinflationary episode. It is crucial to recognize the interplay between these factors rather than attributing the entire inflationary outcome to a single cause.

This example underscores the importance of considering multiple factors and their interactions when analyzing the relationship between excessive federal spending and inflation. While it is true that supply shocks like food shortages can trigger inflation, the subsequent monetary and fiscal responses to those shocks can amplify and prolong the inflationary effects.

Rodger Mitchell:

(At this point I decided not to get into the fact that Zimbabwe was not Monetarily Sovereign, so though it could print currency, it’s money was tied to the dollar, and important inflationary consideration.)

It would be helpful if you could point to a single inflation in history that was precipitated by government spending rather than being precipitated by a shortage of oil, food or some other critical factor.

I suspect all inflations really are caused by shortages.

ChatGPT: There have been cases in history where excessive government spending has contributed to inflation, even in the absence of shortages in critical factors like oil or food. One notable example is the hyperinflation experienced by Germany in the early 1920s.

After World War I, Germany faced significant war reparations and a massive budget deficit. The German government resorted to financing its spending by issuing large amounts of debt and, eventually, by printing money.

The excessive money creation, combined with a lack of corresponding increase in production and output, led to a rapid devaluation of the German mark and hyperinflation.

During this period, there were no significant shortages of oil or food in Germany. Instead, the excessive government spending and the resulting increase in the money supply caused a loss of confidence in the currency, leading to skyrocketing prices.

People’s wages and savings quickly became worthless as the value of the mark rapidly declined.

This example illustrates how excessive government spending and the subsequent expansion of the money supply, without corresponding increases in productivity or output, can lead to inflation.

It demonstrates that inflation can occur even in the absence of shortages in critical factors.

While supply shortages can certainly contribute to inflation, it is not accurate to claim that all inflations are solely caused by shortages. Economic phenomena such as inflation are influenced by a multitude of factors, including both demand and supply-side dynamics, monetary policy, fiscal policy, and other macroeconomic conditions.

It is crucial to recognize that inflation is a complex phenomenon with multiple potential causes, and it can arise from different combinations of factors in different historical contexts.

Rodger Mitchell: So, prices of food and oil went up even though there was no shortage of these products? And it was all due to government spending? Then the inflation was cured by even more government spending to create the greatest military force the world had ever known? Does any of this make sense to you?

ChatGPT: I apologize if my previous responses were not clear. Allow me to clarify.

In the case of Germany’s hyperinflation in the early 1920s, it is important to note that the excessive government spending and subsequent increase in the money supply were contributing factors to inflation.

However, it would be inaccurate to say that the inflation was solely caused by government spending without considering other factors at play.

During that period, Germany faced a complex set of circumstances, including war reparations, economic disruptions from World War I, and political instability.

The excessive government spending and the resulting expansion of the money supply added to these challenges, leading to hyperinflation.

Inflation is a multifaceted phenomenon influenced by various factors, including monetary policy, fiscal policy, supply and demand dynamics, productivity, external factors, and more. It is rarely driven by a single cause.

Regarding your statement about inflation being “cured by even more government spending to create the greatest military force the world had ever known,” it is important to differentiate between the context of post-World War I Germany and the broader discussion about the relationship between government spending and inflation.

Government spending, particularly in the context of wartime mobilization or rebuilding efforts, can have stimulative effects on the economy.

However, the impact on inflation depends on various factors, including the state of the economy, fiscal management, and monetary policies implemented.

It is crucial to approach the analysis of inflation and government spending with nuance, considering the specific historical context and the multitude of factors involved. There is no one-size-fits-all explanation, and each situation requires careful examination of the unique circumstances at hand.

Rodger Mitchell: There is a widespread fear that government spending causes inflation. It is the foundation of the “debt-limit” laws. Because the federal government cannot run short of dollars, the only ostensible purpose of the debt limit is to prevent inflation.

But, government spending alone doesn’t cause inflation. There needs to be, as you said, “war reparations, economic disruptions, and political instability.”

Absent these factors, which cause shortages of key goods and services, government spending does not cause inflation. Thus, the excuse for a debt limit disappears.

ChatGPT: You raise an important point about the relationship between government spending and inflation. While it is a common belief that government spending alone leads to inflation, the reality is more nuanced.

As you mentioned, inflation typically occurs when there are shortages in key goods and services or when there is excessive money creation that outpaces the productive capacity of an economy.

Government spending can potentially contribute to inflation if it is not matched by increased productivity or accompanied by appropriate fiscal and monetary policies.

The purpose of debt limits, including the ones imposed on governments, can indeed be aimed at controlling inflationary pressures. By limiting the amount of debt the government can accumulate, policymakers aim to prevent excessive money creation and potential inflation.

However, it is important to note that debt limits are just one of many tools governments use to manage their fiscal policies, and their effectiveness in curbing inflation can vary.

In practice, the relationship between government spending, debt limits, and inflation is complex and dependent on various factors. These factors include the overall state of the economy, fiscal management, monetary policies, external economic conditions, and more. Each situation requires careful analysis of the specific context to understand the potential impacts on inflation.

While shortages of goods and services can exacerbate inflationary pressures, it is not accurate to dismiss government spending as irrelevant to inflation in the absence of such shortages. The impact of government spending on inflation is influenced by a range of economic factors, and it is subject to ongoing debate and analysis among economists.

In summary, the relationship between government spending and inflation is multifaceted. While shortages of key goods and services can contribute to inflation, government spending can also have inflationary effects if not appropriately managed. The role of debt limits in preventing inflation depends on various factors and can differ from one economic context to another.

Note the repeated use of the “This, but on the other hand, that” argument.

Also, while the public believes excessive” “federal spending causes inflation, ChatGPT says other factors must be present. (It is these “other factors” that are the cause of inflation. Increased money creation is a response to inflation, not a cause.)

While the complaint often is made that https://chat.openai.com/ is not a reliable source of information, that same complaint can be made about every other source of information — books, newspapers, encyclopedias, and certainly the government, the Internet and television (perhaps except for FOX and Breitbart, which are reliably wrong).

For example, you’ll notice that https://chat.openai.com/ never does provide any data to demonstrate that federal spending causes inflation. It dances around that central point by making the “various factors” claim.

Unfortunately, it cannot yet receive pictures or graphs, else I would have provided it with graphs demonstrating the lack of a historical relationship between inflation and federal spending along with the profound historical relationship between oil shortages and inflation.

I suspect that by the time this year ends, we will be able to show the AI pictures, graphs, videos, and music.

It might even admit that debt limits are a lie foisted on the innocent public by the rich, the purpose being to widen the Gap between the rich and the rest.

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.

MONETARY SOVEREIGNTY

#1. Inflation or #2. Sickness, Recession, Poverty. Choose #1 or #2. Yes, seriously.

It’s a real question. If you had to choose between #1. Inflation or #2. Sickness, A Recession, A Depression, Poverty, Illiteracy, Starvation, Homelessness, Crime and some other bad stuff I could mention, would you chose #1 or #2? It may sound like a no-brainer, and perhaps it is in the literal sense of “no brain,” because the vast majority of Americans claim they would rather experience #2 rather than #1. Do you agree that you would prefer to experience sickness, a recession, a depression, poverty, illiteracy, Starvation, Homelessness, Crime, etc. than to experience inflation? Let’s begin with the generally uncontested fact that the federal government created the laws that created the U.S. dollar. Because the federal government can create any laws it wishes, it can create as many dollars as it wishes, and cannot unintentionally run short of dollars. The experts agree:

Former Fed Chairman, Alan Greenspan: “The United States can pay any debt it has because we can always print the money to do that.” Former Fed Chairman, Ben Bernanke: “The U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost.”

We could add to the discussion the fact that federal deficit spending does not cause inflation, which we have proved here and here and dozens of other places on this blog. We could insist that shortages cause inflations, and those shortages can be cured by federal deficit spending. Thus, we can show that rather than causing inflations, federal deficit spending can cure inflations.

What Does Drowning Look Like? — **Sorry, but spending money on lifeguards and floatation devices would have caused inflation.**

But, wait. Why struggle against a tide of misinformation? Let’s assume, for the sake of argument, that federal deficit spending does indeed, cause inflation. It’s what most Americans believe. Because the federal government can’t run short of its own sovereign currency, it could risk inflation by using that currency to pay for:

Comprehensive, generous Medicare insurance for every man, woman, and child in America
Generous Social Security benefits for every man, woman, and child in America, regardless of age, income, or wealth
All costs of education from K-12 and beyond, including advanced degrees from top universities
Rent and other housing subsidies, for all.
A healthful diet for all Americans
Subsidies for all states, counties, cities, and villages, so that none of them would have to levy taxes.
Ending the FICA deduction from salaries
Expanded research in all the sciences: Mathematics, Biology, Botany, Social Sciences, Philosophy, Geology, Physics, Chemistry, Astronomy, and all the other sciences not mentioned.

The purpose of such spending would be to improve and extend the lives of humans and the other living creatures with whom we share the earth. The government has the ability to fund all of #1 through #8. But many people wrongly object, “But that would cause inflation.” If those people were correct, and that spending would cause inflation, it only would mean they have chosen a lesser life rather than experience inflation. They have chosen sickness rather than health, poverty instead of affluence, taxation rather than being tax-free, homelessness rather than sheltered, stagnancy rather than advancement, and ignorance rather than knowledge, all for the fear of inflation. Would you rather suffer from incurable, painful disease than suffer from inflation? Would you rather risk being impoverished and homeless than to risk inflation? Would you prefer that your children be unable to attend the best colleges having the best resources money can buy, just so you don’t see prices rise? Would you rather the type of research that amazed you with the Internet, cell phones, artificial intelligence, moon landings, etc. be discontinued for lack of funds, just so inflation can be avoided? Would you prefer that America default on its debts by enforcing a debt ceiling? Would you rather that the federal government cease to improve our military? Would you rather see the government do nothing to prevent or cure recessions and depressions, just because the cure – federal deficit spending – might cause inflation? In summary, even if we admit the belief, just for the sake of argument, that federal spending causes inflation, we are left with very unsavory alternatives. Think about it. Do you really believe that the possibility, or even the false probability, that federal deficit spending could cause inflation is more important than all of the things federal money could buy?

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.

MONETARY SOVEREIGNTY

“Free minds, free markets,” and free lies.

Reason.com, a mouthpiece for the Libertarian Party, bills itself as “free minds, free markets.” More accurately, it should be called “closed minds, closed markets, and free lies.”

Here is the latest post from Eric Boehm, Reason.com’s economic policy reporter. As expected with Libertarian economic “thought,” it is loaded with wrong inferences, misunderstandings, and/or outright lies.

Printing more money (Photo 17929028 © Svyatoslav Lypynskyy | Dreamstime.com)

November’s $249 Billion Federal Budget Deficit Set a Record. Now, Congress Is Preparing To Spend Even More.
The government spent $501 billion in November but collected just $252 billion in revenue, meaning that about 50 cents of every dollar spent were borrowed.
ERIC BOEHM | 12.16.2022 1:00 PM

The article comes with the photo and caption shown above.

Boehm doesn’t realize that his photo undermines his claim that “about 50 cents of every dollar spent were borrowed.”

The photo shows someone (presumably representing the government) creating dollars from thin air using a copy machine. This immediately demonstrates the senselessness of the Libertarian economic claims because it illustrates why the federal government has no need to borrow dollars.

In fact, the government does create dollars from thin air simply by pressing computer keys, so it never borrows dollars.

Boehm claims that T-bills, T-notes, and T-bonds represent borrowed money. Completely false. They represent dollars deposited into privately held accounts, similar to safe deposit boxes. The government never touches the contents of those accounts.

The dollars are the property of the depositors, not of the government, and remain inviolate until the accounts mature when the contents are returned to the owners. The dollars never are borrowed or used by the government or by anyone else.

Though those dollars often incorrectly are termed federal “debt,” the government does not owe the money any more than a bank owes the contents of a safe deposit box.

As the St. Louis Federal Reserve Bank has said:

“The U.S. government can never become insolvent, i.e., unable to pay its bills . . . the government is not dependent on credit markets to remain operational.

“Not dependent on credit markets” is government-speak for, “does not borrow.”

Further, even if the T-securities were debt, the federal government pays all its debt by creating new dollars ad hoc. It does this by the simple expedient of passing laws and pressing computer keys, both of which it has the infinite ability to do.

Debt never is a burden on the U.S. government or on taxpayers.

As for those taxes you are forced to pay, they are destroyed upon receipt by the Treasury. You take dollars from your checking account — dollars that are part of the M2 money supply measure — and when they reach the Treasury, they cease to be part of any money supply measure.

There is no measure of the Treasury’s money holdings because the Treasury has infinite money. Thus, your tax dollars disappear, effectively destroyed.

So much for all that talk about falling deficits.

The federal government ran a $249 billion deficit during the month of November—that’s the largest total ever posted for that month, and a staggering $56 billion increase over the deficit from November 2021.

The economy is measured by Gross Domestic Product (GDP). The formula for GDP is:

GDP = Federal Spending + Non-federal spending + Net Exports

Thus, by simple algebra, federal spending always grows the economy. Boehm may not realize that he is complaining about economic growth.

Nearly 50 cents of every dollar spent were borrowed and added to the national debt. That’s utterly unsustainable.

“Unsustainable” is the favorite word of deficit liars, who never explain why any size deficit cannot be sustained.

**In what year did the federal “debt” become “unsustainable”?**

The gross federal “debt” (deposits) totaled $51 billion in 1940. It now totals about $30 trillion, nearly a 600-fold increase, and here we are, sustaining.

For over 80 years, the debt whiners have claimed the debt is “unsustainable.” Year after year after year, they have been proven wrong, and still, they learn nothing. Truly pitiful.

And now Congress is gearing up to spend even more.

Though the final details of a lame-duck session omnibus bill won’t be known until next week (likely not until just before lawmakers are asked to vote on it), it’s a near certainty that the final agreement will add to this year’s budget deficit and the ballooning national debt.

Translation: The final agreement will add to the budget deficit which will grow GDP.

Congress passed a short-term spending deal on Thursday night to avert a government shutdown and give lawmakers another week to hammer out a more comprehensive deal to fund the government through the end of the current fiscal year.

Where did the dollars to fund the government come from? The government merely created them from thin air by creating laws and pressing computer keys, something they can do forever.

That larger omnibus bill could include billions of dollars in additional military and humanitarian aid for Ukraine, as well as emergency funds for hurricane relief, The Washington Post reports.

The final price tag is likely to be about $1.7 trillion, according to Politico.

That will be $1.7 trillion added to Gross Domestic Product.

Depending on what else ends up in the final version of the end-of-year omnibus, the package will add between $240 billion and $585 billion to this year’s budget deficit, according to an analysis by the Committee for a Responsible Federal Budget (CRFB), a nonprofit that advocates for balancing the books.

It says much about your lack of economics knowledge when you resort to the CRFB for your ideas. Here is what happens when the government balances the books:

1804-1812: U. S. Federal Debt reduced 48%. Depression began 1807.
1817-1821: U. S. Federal Debt reduced 29%. Depression began 1819.
1823-1836: U. S. Federal Debt reduced 99%. Depression began 1837.
1852-1857: U. S. Federal Debt reduced 59%. Depression began 1857.
1867-1873: U. S. Federal Debt reduced 27%. Depression began 1873.
1880-1893: U. S. Federal Debt reduced 57%. Depression began 1893.
1920-1930: U. S. Federal Debt reduced 36%. Depression began 1929.
1997-2001: U. S. Federal Debt reduced 15%. Recession began 2001.

Balancing the books is a good idea for monetarily non-sovereign entities like cities, counties, states, euro nations, businesses, and individuals. They do not have the unlimited ability to create their own sovereign currencies.

In fact, they have no sovereign currencies.

But the U.S. government is Monetarily Sovereign. It can create infinite dollars and the legal ability to make those dollars worth anything it chooses.

Over the 10-year budget window used by the Congressional Budget Office and other number crunchers to assess the federal budget, the damage could exceed $5 trillion.

**Recessions (vertical gray bars) follow reductions in federal deficit growth.**

Translation: Exchange the words “economic growth“ for the term “damage” and you will see the truth.

“Not only would these policies increase deficits, but they would also worsen inflation,” the CRFB warns in its analysis.

“With inflation surging and debt approaching record levels, policymakers should avoid passing costly end-of-year policy changes.”

As always, the CRFB spouts nonsense. Inflation is not caused by or “worsened” by federal deficits. All inflations through history have been caused by shortages of important goods and services.

Changes in federal debt, i,e, deficits (red), do not correspond with changes in inflation (blue).

If federal deficits “worsened inflation,” one would expect the peaks and valleys of the above graph to correspond. They do not.

Inflations are not caused by federal spending. Today’s inflation was caused by COVID-related shortages of oil, food, shipping, lumber, computer chips, labor et al.

For much of the past year, the Biden administration has been touting falling deficit figures as evidence that the economy was picking up and, implicitly, as a signal that government spending could increase without adding to the nation’s tenuous fiscal situation.

If true, that would be incredibly uninformed by the Biden administration.

Mathematically, it is not possible for falling deficit figures to be evidence of growing Gross Domestic Product. That would be like falling food supplies being evidence of growing nutrition.

That was always misleading, as the falling deficit was entirely the result of one-time, emergency COVID-19 spending coming off the books.

The underlying figures showed all along that the deficit situation was continuing to worsen, and that President Joe Biden’s policies were adding trillions of dollars to the deficit over the long term.

Wait, Mr. Boehm. You say emergency COVID-19 spending came off the books, yet now we have inflation. What happened to your claim that increased federal spending causes inflation?

November’s spending and revenue figures should put an end to these silly games. We’re only two months into the fiscal year, but the federal government is now on pace to run a deficit of about $1.9 trillion, which would be the largest nonpandemic budget deficit ever and a huge increase from the $1.38 trillion deficit in the fiscal year that ended on September 30.

That spending has helped reduce the likelihood of a recession, which by the way, is defined as two consecutive quarters of reduced GDP — a reduction which is exactly what you want to do.

A major driver of November’s rapidly expanding deficit was something else that fiscal hawks have been warning about for a while: higher borrowing costs created by higher interest rates.

The Wall Street Journal notes that the federal government spent 53 percent more on borrowing costs last month than it did in November 2021.

The higher borrowing costs were foolishly and arbitrarily created by the Fed. They do nothing to prevent/cure inflation. They do nothing to cure the shortages that cause inflation.

In fact, higher interest rates exacerbate the shortages and thus, exacerbate inflation. In essence, the Fed is applying leeches to cure anemia.

Higher borrowing costs are not the result of federal deficits. They are the result of Fed ignorance.

The best time to stop borrowing heavily was yesterday (or several years ago), but the second-best time would be today. Instead, Congress is likely to make this problem even worse—again—by continuing to spend like there’s no tomorrow.

SUMMARY

The entire Boehm article is based on commonly held myths. The facts are:

Federal deficits are necessary for economic growth. (That is simple mathematics.)
The U.S. federal government never borrows dollars. (Why would it, given its infinite ability to create dollars).
Reduced federal spending causes recessions and depressions. (Again, this is simple mathematics.)
Inflations are caused by shortages of key goods and services, not by federal spending. (As demonstrated by history).
Inflations are cured by federal spending to acquire and distribute the scarce goods and services. (Again, as demonstrated by history.)
Increasing interest rates does not help prevent or cure inflations.
Increasing interest rates exacerbates the shortages that cause inflations. (That is why raising interest rates is recessionary.)

Oh, and applying leeches does not 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.

MONETARY SOVEREIGNTY

Recession: Not If, But When

Raj Subramaniam

FedEx CEO says he expects the economy to enter a ‘worldwide recession’
PUBLISHED THU, SEP 15 20226:38 PM EDTUPDATED THU, SEP 15 20228:25 PM EDT
Krystal Hur

FedEx CEO Raj Subramaniam told CNBC’s Jim Cramer on Thursday that he believes a recession is impending for the global economy.

The CEO’s pessimism came after FedEx missed estimates on revenue and earnings in its first quarter.

As we have been telling you for months (years, actually), Jerome Powell will fail to stop inflation and instead will cause a recession or depression. There are two reasons.

He has no idea what causes and what cures inflations, and
He doesn’t have the tools, even if he knows.

So, today he, in essence, is using a chainsaw to slice the wedding cake and applying leeches to cure anemia. And then, when the chainsaw and the leeches make things worse, what will Powell do? He will use a bigger chainsaw and apply more leeches.

As I predicted, his interest rate increases have failed to end inflation. So, what will he do? He will raise interest rates again and again, of course. (The definition of insanity is doing the same thing repeatedly and expecting a different result.)

He refuses to learn from failure.

The primary reason why prices — any prices — rise is scarcity. It would be quite rare for overall prices to increase because consumers suddenly have more money in their pockets and spend more on everything.

When something prevents the supply of any one product (other than oil) from growing, we have an increase in that product’s price. (Oil is a special case because it has universal use.) To cause inflation — a general rise in prices — a general restriction in supply is required.

And that general supply restriction was provided by COVID., which caused so many supply disruptions that recovery is difficult. And to some degree, the pandemic still is with us.

Our recovery from covid is delayed COVID partly because the GOP didn’t want us to recover. They denied the need for masking, and vaxing, so they continued to spread the disease.

They wanted to be able to complain about Biden and the Dems.

Not that the Dems are entirely innocent. They still join the GOP in promulgating the false notion that federal deficit spending causes inflation.

Not only does federal deficit spending not cause inflation, but targeted deficit spending, to acquire and distribute scarce goods and services is the only government solution to inflation.

Powell thinks consumer demand is causing inflation. He wants to force consumers to demand less by making borrowing more expensive. But demand less what? Should we demand less oil? Less food? Less housing? Fewer cars?

If he fails to quell demand, which is likely, inflation will continue. If he succeeds in reducing demand, we will have a recession, for that is precisely what a recession is: Lack of demand.

In short, Powell is trying to fight inflation by causing a recession. Stagflation next? Then depression?

Inflations are caused by shortages. PERIOD. The only way to cure inflation is to remedy the shortages.

Today, we face many shortages ranging from oil to food, computer chips, lumber, paper, and the entire supply chain, including shipping containers, port facilities, and labor.

Some of the foods in short supply (and therefore experiencing price increases) are meat, poultry, dairy, eggs, and many vegetables. Will interest rate increases cure those shortages? Of course not.

Will interest rate increases cure the oil, food, computer chip, lumber, paper, supply chain, shipping container, port facility, and labor shortages?

The whole Powell concept is based on ignorance.

Interest rate increases will exacerbate shortages by making production more difficult. Businesses will be less likely to borrow for upgrading machinery or hiring more and better quality labor.

As a result, production will not grow sufficiently, which means more shortages.

It will be the “leeches-to-cure-anemia” situation, where the supposed solution makes the problem even worse.

Eventually, inflation will end, but not because of Powell (who will claim credit). Inflation will end because businesses will catch up and begin to produce more, sell more, and ship more.

Meanwhile, we’ll have to suffer through sky-high interest rates, continual nonsense from Congress and Powell, ever more inflation, and excuses for cutting benefits to the not-rich. (There still will be plenty of tax benefits for the rich. Deficit worries don’t apply to them.)

**Recessions (vertical gray bars) follow reductions in federal deficit growth (red) and are cured by increased federal deficit growth.**

**There is no relationship between federal deficit growth and inflation (blue). Peaks and valleys do not come close to matching.**

The GOP is hopeless. It has become a nut factory. But, perhaps I will live to see the day when the Dems begin to admit that federal deficits are beneficial because they add growth and scarcity-fighting dollars — i.e., inflation-fighting dollars– to the economy.

Congress does the bidding of the very rich, who want the wealth Gap to grow. The pols promulgate the Big Lie that federal finances are like personal finances, where debt is a burden. But debt is not a burden on the federal government.

This gives Congress the excuse to cut deficit spending.

So, we will continue to lurch from one recession to the next, with the occasional depression thrown in for flavor.

And as for the public ever understanding, don’t make me laugh. Seventy million people saw what Trump did for 4 years, then voted for him. That tells you all you need to know about the public’s intelligence.

Come to think of it, the insanity of providing the same truths time and again and expecting a different result applies to me, too. I’ve been ready to quit for several years, but then I think of the world my grandchildren will endure, and hope springs eternal.

Rodger Malcolm Mitchell
Monetary Sovereignty

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

MONETARY SOVEREIGNTY

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