Stagflation: And now others are predicting it. How to prevent it, and why

Government exists to protect and improve people’s lives. If it didn’t, why would we give it so much of our time, money, and freedoms?

Too often, people forget why they pay for a government. President John Kennedy once said, “Ask not what your government can do for you; ask what you can do for your government.”

Poetic, but also one of the least practical statements a president can make. The truth is, government should serve the people, not the other way around. Yet, some economists still claim the U.S. federal government can’t afford to help the poor, sick, and powerless, when in reality, as a Monetarily Sovereign entity, it can afford anything.

We are told the federal “debt” is unaffordable, when our Monetarily Sovereign federal government can afford anything — anything at all — and that people often have difficulty paying for their healthcare, education, transportation, housing and other needs.

The U.S. federal government has infinite money. It does not need tax dollars. If it wanted to, it could create trillions of dollars tomorrow while preventing inflation by curing shortages.

None of this is explained to you by our leaders. Instead, they try (and often succeed) to brainwash you into believing that Medicare for All, education for all, food for all, better roads and bridges, research and development — the better life for all — is unaffordable.

It is not. It is affordable. It is the most important purpose of government.

So why do our leaders lie? Two words: Gap Psychology. There is a human desire to distance oneself from those “below” in any measure — income, wealth, power — and to come closer to those “above.” 

Assume man “A” earns $100K, and he receives a raise to $110K. Man “B” earned $50K but he receives a raise to $100K . It is common for man “A’ to feel threatened. “Why should he get a big raise and I got a small  one.” Though “A” still earns more, he resents the Gap below him narrowing.

We see it everywhere: resentment toward the poor receiving free education, free food, free anything. Though the poor may be living on the edge, often going without food or decent housing or education, he has a false “fairness” belief (“It isn’t fair that they get free food or free anything.”)

Logically, it should make no difference to “A.” Nothing is taken from him. But he is envious, resentful, angry.

The rich use that emotion to support the belief that the federal government needs to cut Medicare and Social Security benefits and raise FICA taxes, to increase the Gap between the rich and the rest.

Here is an excerpt from a recent article:

SA analyst says a stagflationary recession risk is growing

10/15/2026

Wall Street tumbled Wednesday as hotter-than-expected inflation data intensified concerns over interest rates, with technology stocks leading the market lower and reigniting warnings about a potential stagflationary recession.

Seeking Alpha analyst Daniel Jones said the latest consumer price index figures

On September 22, 2026, we wrote this: 

Fed Chair Powell pushes the economy over the cliff. Next stop: Stagflation

The past interest rate increases have done nothing to halt or even moderate inflation. So, Chairman Powell does the only “sensible” thing. He keeps doing what repeatedly has failed, praying that somehow, in some way, magic will happen.

To fight higher prices, the Fed will raise the prices of mortgages, autos, and business operations — and just about every other thing you wish to buy. And some people believe this nonsense.

For many years, economists have been taught that higher interest rates reduce borrowing, spending, and investment, thereby reducing demand and slowing inflation.

The presumed chain of events is:

1. Higher interest rates make borrowing more expensive.
2. Consumers buy fewer houses, cars, and other goods.
3. Businesses reduce borrowing, investment, and hiring.
4. Total demand for goods and services falls.
5. With less demand competing for available supply, businesses have less ability to raise prices.

Higher interest rates supposedly fight inflation by reducing demand. The theory assumes that the demand-reducing effects outweigh the inflationary effects of higher borrowing costs and increased interest income.

What is another name for #s 1, 2, 3, 4, and 5? RECESSION. 

Economists have been taught in school that the cure for inflation is higher prices and recession. It is madness. It is the often-proven disastrous AUSTERITY.

Inflation is caused by shortages of crucial goods and services, so to cure inflation one must cure the shortages. You don’t cure shortages by impoverishing the public and causing a recession; you address them directly. 

If the shortage is of oil, the government should fund additional exploration, drilling, refining, storage, shipping, and importing. It also should fund alternative energy like solar, wind, geothermal, and nuclear, plus R&D to use fossil fuels and non-fossil fuels more efficiently.

More energy sources + better use of energy = no shortage + prosperity. 

Increased costs via higher interest rates + less availability of products  and services = recession and poverty.

If the shortage is of food, the government should fund farming R&D, education, land use, crop cultivation, shipping, packaging, and retail. It should not impoverish the nation in a theatrical, inflation-reductioin ruse  —especially when the proposed benefit cuts and tax increases disproportionately harm the middle and lower classes.

Congress, funded by the ultra-wealthy, possesses the tools to eliminate shortages; the Federal Reserve does not. Yet, Congress conveniently has offloaded the task of inflation control onto the Fed.

And that is the whole point.

Recessions impose costs on everyone, but they are devastating for the “not-rich.” They provide a pretext for federal austerity: benefits are slashed, taxes are hiked, the vulnerable suffer, and the wealthy acquire assets at bargain prices.

When the recession finally wanes, the non-wealthy find their benefits permanently slashed and their tax burdens increased, while the ultra-wealthy have secured assets at bargain prices. These acquired assets appreciate tax-deferred and are ultimately subject to the lowest capital gains rates.

Conversely, if the average worker earns a raise, it immediately is taxed at the highest marginal rates. Even those prudent enough to save through an IRA see their hard-earned money taxed at these peak rates upon withdrawal.

Consequently, the wealth Gap widens, which is precisely the outcome desired by the wealthy and the Federal Reserve.

So thank you, Fed and Congress, from those who are in the upper 2%, for the stagflation-widening Gap, which makes the rich ever richer and the poor their permanent — even willing — servants. The not-rich have been taught that federal deficit spending is a financial problem whereas unaffordability for the rest of America is expected.

Sadly, you of the not rich accept the devastating lie that y9u should, “Ask not what the goverment can do for you, but ask what you can do for the government.” 

It is the lie that, if you believe it, will impoverish your family, forever.

At long last think:

  1. The federal government has infinite money. Unlike state/local governments it doesn’t need tax dollars. It creates all the dollars it needs by voting for them. I never can run short.
  2. Increasing interest rate raises the prices it supposedly reduces.
  3. The cure for inflations is not to quench demand by depressing the economy. The cure is to reduce shortages by targeted federal spending.
  4. Federal debt and deficits are not problems for taxpayers. Despite the words negative-sounding words “debt” and “deficit,’ they actually are assets to the economy. The higher the deficit, the faster the economy will grow. 

Ignorance is costly. If you vote with ignorance you will suffer with stagflation — unless you are very rich.

Rodger Malcolm Mitchell

 

–A few simple questions that never have been answered

Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
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The nonsense in Washington boils down to a few simple questions that never seem to be answered

First the background:
The federal government is the largest customer and money provider in America, spending about $3.8 trillion dollars per year on goods, services and benefits. This compares with under $12 trillion for the entire domestic business sector.

(http://www.gpoaccess.gov/usbudget/fy11/hist.html ) and (http://research.stlouisfed.org/fredgraph.png?g=1jb )

The U.S. government also is America’s largest employer, with about 4.6 million full time employees:

Military: 1,430,000 (Department of Defense, Active Duty Military Personnel Strengths by Regional Area and by Country, September 30, 2010); 700,000 defense employees worldwide (Department of Defense Civilian Personnel Management Service); 2009 Number of Full-Time Federal Employees – 2,518,101 http://www2.census.gov/govs/apes/09fedfun.pdf

The federal government employs as many people as the top nine civilian employers – Wal-Mart, McDonalds, UPS, Sears, Home Depot, Target, IBM, GM and GE — combined.

( http://nyjobsource.com/largestemployers.html )

The President, the Tea (formerly Republican) Party, the Democrats, the media, most columnists and old-line economists agree federal spending should be reduced and/or federal taxes increased. The goal: To reduce the federal deficit.

The two biggest problems facing America are the recession and the related unemployment.

Now for the simple questions:
1. What do businesses do when their biggest customer reduces purchases? Do they fire employees, reduce purchases of goods and services or both?

2. When businesses fire employees, or reduce purchases of goods and services, how does this stimulate the economy or cut unemployment?

3. What do individuals do when their salaries and/or benefit checks are reduced? Do they spend less, save less or both?

4. When individuals spend less or save less, how does this stimulate the economy or cut unemployment?

5. Considering all of the above, how does a reduction in federal spending and/or an increase in taxing (aka “deficit reduction”) solve our two biggest related problems: the economy and unemployment?

These questions never are asked, much less answered, because the politicians do not care about the answers. Their prime concern is not the working (or non-working) Americans. The politicians prime concern is who gets elected, i.e., power.

President Obama, the Tea (formerly Republican) Party and the Democrats all have the same goal, with the differences being only in the execution. And I use the word “execution” intentionally, because whoever “wins,” the American public will lose. We, our children and our grandchildren will suffer the execution of joblessness, poverty and loss of health and lifestyle. Our great American dream will be shattered — needlessly — all for the greed, ambitions and ignorance of the politicians.

While we stress about traitors at Fort Hood, we give a free pass to traitors in Congress, who intentionally do more harm to America than al Qaeda ever could.

Rodger Malcolm Mitchell
http://www.rodgermitchell.com


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No nation can tax itself into prosperity, nor grow without money growth. Monetary Sovereignty: Cutting federal deficits to grow the economy is like applying leeches to cure anemia.

MONETARY SOVEREIGNTY

–The depression cometh

Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
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Historically, whenever dollars have been taken from our economy, or even when dollar growth has been reduced, the economy has gone into recession or depression. (See: Cause of recessions and depressions)

Congress and the President insist the federal deficit must be reduced. There are but two methods for reducing the deficit: Increase federal taxes and/or reduce federal spending. Both methods reduce the number of dollars in the U.S. economy.

7/29/11: Roya Wolverson, Time Magazine: “The bad news just keeps coming. The U.S. economy grew even less than expected in the second quarter, at a rate of 1.3%, down from what many economists predicted would be 1.8% or higher. The reasons for the continued lackluster performance haven’t changed. Consumers, squeezed by higher gas and other prices, are buying less of everything from electronics to meals out to new furniture.”

Recently, I posted, “Based on where Obama and the Tea/Republicans are headed, there will be a depression (not just a recession) next year. Only a miracle of realization, by both parties, can save us now. (See: Depression in 2012)

7/30/11: Alan Rappeport, Pharmaceuticals Magazine: “Merck, the US drug company, will cut as many as 13,000 jobs, or 13 per cent of its workforce, as it looks to slash costs and invest in emerging markets. The cuts, to be achieved by 2015, follow those announced last year when Merck said it would reduce its staff by 17 per cent. Merck has been looking to achieve the savings it promised when it acquired Schering Plough for $41bn in 2009.”

Congress and the President remain ignorant. They continue to call for increased taxes and/or spending cuts. The depression cometh.

Rodger Malcolm Mitchell
http://www.rodgermitchell.com


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No nation can tax itself into prosperity, nor grow without money growth. Monetary Sovereignty: Cutting federal deficits to grow the economy is like applying leeches to cure anemia.

MONETARY SOVEREIGNTY

–Today’s ignorant comment, this time from Robert J. Samuelson, Opinion Writer at the Washington Post

Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
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Unfortunately, this blog never will run short of material. With the vast majority of writers, politicians and even old-time economists, not understanding Monetary Sovereignty, and instead parroting today’s popular wisdom that federal government finances resemble personal finances, I have a huge selection of ignorant comments from which to choose.

This time, the myths come to us courtesy of Robert J. Samuelson:

Social Security, Medicare, Medicaid and other retiree programs constitute roughly half of non-interest federal spending.

These transfers have become so huge that, unless checked, they will sabotage America’s future. The facts are known: By 2035, the 65-and-over population will nearly double, and health costs remain uncontrolled; the combination automatically expands federal spending (as a share of the economy) by about one-third from 2005 levels. This tidal wave of spending means one or all of the following: (a) much higher taxes; (b) the gutting of other government services, from the Weather Service to medical research; (c) a partial and dangerous disarmament; (d) large and unstable deficits.

No Mr. Samuelson, it doesn’t mean any of those things. Let me address each:

(a)”. . . much higher taxes. . .”
Federal taxes have nothing whatsoever to do with federal spending. The U.S. is Monetarily Sovereign. It pays its bills by instructing banks to credit bank accounts. Whether taxes fall to $0 or rise to $100 trillion, neither event would change by even $1 the federal government’s ability to instruct banks to credit bank accounts.

In federal financing, there is no functional connection between taxing (or borrowing) and spending. When you and I spend, we transfer money. When the federal government spends, it creates money. Huge difference, that Mr. Samuelson does not understand.

(b)” . . . the gutting of other government services, from the Weather Service to medical research. . . “
This is based on the myth that federal spending is limited. It is, but not by what Mr. Samuelson thinks. It’s not limited by taxes. It’s not limited by borrowing. It’s limited only by Congress and inflation, which today is nowhere near. Remember, we’re in a recession, where the nation is starved for money. Federal spending adds needed money to the economy.

(c)” . . . a partial and dangerous disarmament. . . “
Same as (b)

(d)” . . . large and unstable deficits.”
Yes the deficits will be large. They need to be. This is a large country with large money needs. Deficits are the federal government’s method for adding money to this large country. Without large and growing federal deficits we will not be a large and growing country. And what the heck are “unstable” deficits? Or is “unstable” just a more erudite-sounding word you toss in as a synonym for “bad”?

Like most opinion writers, you do not understand the differences between Monetary Sovereignty and monetary non-sovereignty. Let me summarize our current situation:

Our economy languishes. Unemployment is far too high. We need to stimulate businesses so they will hire more people. You, Mr. Samuelson, are suggesting that the federal government pay less money to Social Security, Medicare, Medicaid and other retiree programs, because you erroneously believe the government does not have the unlimited ability to pay its bills.

If the federal government increases its payments to these programs, the recipients of this money will spend it, which will stimulate business and help reduce the unemployment problem.

Mr. Samuelson has joined the crowd who feels that funding ”. . . other government services, from the Weather Service to medical research” along with the military must be accomplished by reduced funding to our seniors and to our poor. If we follow Mr. Samuelson, America will decline to a mean, harsh, wretched nation, indeed.

Readers of Mr. Samuelson’s columns should drop him a note and suggest he acquaint himself with Monetary Sovereignty, before he spreads any more incorrect and harmful myths.

Rodger Malcolm Mitchell
http://www.rodgermitchell.com


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No nation can tax itself into prosperity, nor grow without money growth. Monetary Sovereignty: Cutting federal deficits to grow the economy is like applying leeches to cure anemia.

MONETARY SOVEREIGNTY