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.

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.


Why we will have a recession this year

We are on track to sliding into a recession if we are lucky, or into a depression if we are not.

It all is due to a massive misunderstanding about the role of the Federal Reserve, Congress, and the President with respect to inflation.

The Fed blame game
Neil Irwin, AXIOS

It is the high season for being mad at the Federal Reserve.

Critics accuse them of being feckless as inflation pressures built last year, and as a result, the United States is facing prolonged high inflation, a painful recession to rein it in — or both.

Why it matters: In reality, the Fed didn’t create the current inflationary surge by itself— but it was too complacent as prices spiked last year.

Fact: Not only did the Fed not create the current inflationary surge by itself, but as we shall see, the Fed wasn’t at all responsible for today’s inflation.

Now the economic future depends on its ability to make up for lost time, and navigate a tightrope-thin path to bringing inflation down without tanking the economy.

Fact: It is not up to the Fed to bring inflation down. It doesn’t have the tools.

The Fed always takes heat for its decisions. That is to be expected when a handful of technocrats make decisions, behind closed doors, that shape a $24 trillion economy.

As you will see, the fault for inflation lies not with the Fed, but with a bunch of politicians — Congress and the President — and circumstances.

What is notable is how the most mainstream of economic commentators are piling on. The Economist’s recent cover called it “The Fed that Failed.”

Bloomberg published an essay headlined “The Fed Has Made a U.S. Recession Inevitable” — written by the former president of the New York Fed.

Blaming the Fed for inflation is like blaming the phone company for 911 calls. There is no cause/effect between the problem and a tangentially related agency.

Flashback: Last year, even as inflation started to surge, the Fed kept its aggressive monetary stimulus — interest rates near zero and buying billions of dollars in bonds — in place, only ending it last month.

This infers the commonly believed myth that low interest rates and increased money supply cause inflation.

From 1960 through 2009, interest rates were relatively high (compared to current rates) and inflation also was relatively high.


Beginning in 2009, interest rates had been low as had been inflation

In reviewing the above two graphs, it is difficult to infer that high interest rates prevent inflation and low interest rates cause inflation.

In fact, one more easily could infer that inflation causes high rates simply because the Fed believes in raising rates when inflation threatens.

We have what amounts to a self-fulfilling prophecy by the Fed.

And also:

Changes in the M2 money supply do not parallel changes in inflation.

From the above graph, one would have difficulty inferring that “excessive” money creation causes inflation.

So if low interest rates and “excessive” federal money creation don’t cause inflation, what does?

Insiders at the central bank don’t really dispute that they should have begun withdrawing that stimulus earlier.

The Fed was lulled by the fact that the initial surge of inflation last spring was concentrated in a handful of categories, then by a temporary softening in inflation last summer.

Those “insiders” should dispute the notion that should have begun withdrawing stimulus (taking dollars from the economy) earlier.

Had they done what they now believe they should have done, we would be in the midst of a recession, or more likely, a depression.

“We don’t have the luxury of 20/20 hindsight in actually implementing real-time decisions in the world,” Chair Jerome Powell said at a news conference last month.

Had they known how persistent inflation would be, Powell added, “then in hindsight, yes, it would have been appropriate to move earlier.”

Wrong. They do have the benefit of 20/20 hindsight, because this hindsight now shows no cause/effect relationship between interest rate increases and inflation decreases, nor does it reveal a cause/effect between money creation and inflation.

At the same time, it’s not clear that inflation right now would be radically different in an alternate universe where they had moved to tighten money earlier.

Right. It’s “not clear” because tightening money would not have reduced inflation, but would have destroyed the economy.

To control inflation, one must control the true cause of inflation, and the true cause of inflation is not low interest or high money supply.

“It is unlikely that the Fed could have lowered the inflation rate in 2021 because the fiscal support was so massive and its tools work with a lag,” Jason Furman, the Harvard economist and former White House economist, tells Axios.

Wrong., “Fiscal support” and “lag” are not the issues.

But by not acting sooner, the Fed has increased the risk that inflation will remain high through 2022, and beyond, he said: “If it had been more aggressive last year, we would be seeing the effects more this year.”

If the Fed had been more aggressive last year (in cutting the money supply while raising interest rates), we would have seen the effects last year: Recession and or depression.

Consider this admission from the article’s author, Neil Irwin:

Countries with central banks that did tighten faster are also experiencing high inflation. (In New Zealand, which raised rates back in October, it’s 6.9%.)

Wait! What?

If countries that did tighten faster also are experiencing high inflation, why doesn’t that give the Fed, Congress, the President, the economists, the media, and Mr. Irwin a clue?

Moreover, there is a risk that if they had moved more aggressively last year, it would have slowed the rapid recovery without improving the inflation results very much, given the unusual mix of factors around the supply chain disruptions that are driving higher prices.

Right. There is a mix of factors driving higher prices, and those factors all can be summarized in one word: Shortages.

And there you have it. Inflations — all inflations — are caused by shortages of key goods and services.

Not by too much money, not by too-low interest rates: All inflations are caused by shortages, and all inflations are cured by curing the shortages.

And often, these shortages can be cured by additional, not by less, money creation.

Today’s inflation is caused by shortages of food, energy (mostly oil but also other forms of energy), shipping, computer chips, labor, and all the thousands of related products.

Food prices have risen because food is in short supply. Food is in short supply, not because the government added dollars to the economy, and not because people suddenly are eating more, but because of COVID and weather, and related shortages of labor, equipment, fertilizer, and other farming needs.

One does not cure a food shortage by starving the populace. One cures a food shortage by growing more food.

Energy is in short supply because the energy suppliers can’t obtain sufficient materials and labor to extract the oil, gas, and coal we need. This is related to COVID and lately, the Russia/Ukraine war.

One does not cure an energy shortage by forcing the nation to use less energy. One cures an energy shortage by creating more oil, gas, wind, geothermal, and solar energy.

Everything in our economy is inter-related. We are now short of homes, not because more people suddenly want homes, but because builders, who are short of labor and materials, can’t build fast enough. So home prices are soaring.

The cure for a shortage of homes: Fund the building of homes via appropriate tax cuts for all the home-building-related industries.

The list goes on and on, with the main culprits always being the same: Shortages, due not to increased demand but to decreased supply. The cure for a shortage: Increase the supply.

“I guess, with perfect hindsight, perhaps we would’ve moved to a contractionary policy stance to try to offset some of the supply chain issues and to offset the strong demand from the fiscal stimulus,” Minneapolis Fed President Neel Kashkari tells Axios.

“Offsetting supply issues” with a contractionary policy stance (i.e. creating a recession) is like starving the people as a cure for a food shortage.

But, he added, “I’m a little bit cautious about saying, ‘Boy, we should have just tightened earlier,’ because if the inflation’s being driven by … supply-side factors, it’s not clear what the benefit of that would’ve been.”

It should be clear that there would have been no benefit at all — just punishment of the private sector.

Yes, but: The real risk is that by waiting as long as it did to pivot to tighter money, the Fed will have to move so quickly to catch up that it triggers a breakdown, as the economy struggles to adapt to a world of less abundant cash.

When the Fed moves with maximum speed, consumers and businesses have less time to adjust to higher rates on all sorts of debt.

Time is not the issue. If cash is less abundant, the economy cannot adapt, slowly or quickly. When federal deficit spending does not increase sufficiently, we have recessions. Period.

Starving the economy of money is the issue. Fast starvation or slow starvation, both ultimately produce starvation.

When federal debt growth (purple line) declines we have recessions (vertical gray bars), which are cured by increased federal debt growth.

At its meeting that concludes this coming Wednesday, the Fed is likely to begin its catch-up process in earnest by raising short-term interest rates half a percentage point and commencing with shrinking its balance sheet by up to $95 billion a month.

To “shrink its balance sheet,” the Fed must pull money from the economy. That’s $95 billion removed from the private sector (i.e. the economy) every month.

That absolutely, positively will have a depressive effect on economic growth. 

The shift toward tighter money has rapidly spread out across lending markets. The average rate on a 30-year fixed-rate mortgage has soared from 3.11% at the end of last year to 5.10% now.

And still, we have inflation because the problem is not low interest rates. The problem is shortages. Cure the shortages and you cure inflation.

This is a situation where the government should throw money at the problem. Give the oil companies money on the condition they use it to raise salaries (to attract more people) and to purchase equipment.

Inflation (red line) parallels oil prices (blue line). Increase the supply of oil and you decrease the price of oil, which will decrease inflation.

Give farmers higher supplements and tax breaks for growing, and cut supplements for not growing. Similarly fund the building trades, purchase computer chips using the government’s unlimited funds, aid the shipping industries, all with direct supplements and tax breaks.

Meanwhile, eliminate the FICA tax to encourage management to hire, and and lower income taxes to encourage more people to come back to work.

Also, provide Medicare for All, taking that financial burden off corporations, to encourage hiring.

The bottom line: The Fed spent last year driving their metaphorical car at full speed, not realizing that they were entering a dangerous, curvy stretch of road. The road would still be dangerous no matter what.

The mistake was not slowing down sooner — making for a high risk of crashing. And we’re all in the car.

No, the mistake was driving their metaphorical car in the wrong direction. They already have the map in hand. They merely have to use it, and not stubbornly drive faster toward the east, when the goal is west.

Another metaphor: Trying to cure inflation by cutting the money supply is like trying to cure anemia by applying leeches.


Inflation is a supply problem; inflation is not a demand problem.

Today’s inflation is caused by shortages of food, energy (mostly oil but also other forms of energy), shipping, computer chips, labor, and all the thousands of related products.

To cure inflation one must cure the shortages by increasing the supply. There is no other rational solution.

Attempting to cure inflation by cutting demand will result in recession or depression. There is no other outcome. 

The U.S. government is Monetarily Sovereign, meaning it has all the tools it needs in order to increase the supply of scarce goods and services.

Congress and the President control the U.S. government, so they, not the Fed, are responsible for preventing, causing, and/or curing inflations, recessions, and depressions.


[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
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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.