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

 

–The failure of common sense in economics. How the President and Congress ignore economic facts and play Russian roulette with our lives.

Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
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There is something of a rule in problem-solving that questions beginning with “How” are to be preceded by a thorough examination of questions beginning with “Should.” President Bush II failed to do that when he asked his advisors questions like, “How do we fight a war in Iraq and Afghanistan” and “How do we arrest Saddam Hussein.” The correct questions were “Should we fight a war in Iraq and Afghanistan” and “Should we arrest Saddam Hussein.”

A football coach does not begin with “How can we increase our passing yardage?” He begins with “Should we increase our passing yardage?” A company does not begin with, “How can we increase the number of our stores?” It begins with a thorough examination of “Should we increase the number of our stores?”

Sadly, President Obama, Congress, the media and the old-line economists work feverishly to answer the question, “How can we reduce the federal deficit?” They believe a thorough examination of “Should we reduce the federal deficit?” is unnecessary. They already “know” the answer, despite massive evidence to the contrary.

When you ask the wrong question, you find the wrong answer. Congress and the President can’t agree on an answer, because the question is wrong. It’s akin to asking, “How should we sail a ship without falling off the edge of the world?”

The correct question is, “Should we reduce the federal deficit?” Many people give perfunctory, knee-jerk answers, such as, “The deficit is not sustainable” or “Our children will pay for it.” But no answers have been based on the one, overriding, undeniable fact:

Federal deficits = net non-federal saving

Cut deficits and you cut saving. Cut saving and you cut economic growth. Cut economic growth and you enter recessions and depressions and the unemployment that accompanies them. The facts are that simple and undeniable. But, the President and members of Congress do not work from facts; they work from what each believes is common sense.

Common sense consists of beliefs most people consider obvious and sound, things “everyone knows.” Yet, your common sense may be different from my common sense, because it is affected by our different personal experiences, as well as by analogy, religion, social mores, history, logic, teaching, folklore, aphorisms, leaders and every form of information transfer, all of which vary from person to person.

The earth must be flat, not round, else the oceans would pour out. Nothing can be in two places at the same time – except in Quantum Mechanics. Running fast does not make your watch run slower – except in Relativity. If a roulette wheel lands on red five times in a row, it is more likely to land on black the next spin. Common sense.

Because common sense does not require research, it allows for fast decisions and is powerfully built into our genes. We have great difficulty departing from our common sense beliefs, because they are evolutionarily valuable. We experience and use common sense every day of our lives. We do not need research to tell us to avoid walking blindly into a street or reaching into a fire. Anyone who intentionally does these things is a “fool.”

So powerful is common sense, we angrily consider all those who depart from of our visions of common sense to be fools. Here are examples of common sense for most Americans:

1. Debt is a burden on the debtor; the more debt, the greater the burden. Debtors can be forced into bankruptcy by creditors.
2. A deficit is worse than a surplus. Outgo requires income. Taxes and borrowing pay for government spending.
3. Everything has a cost and a limit. Nothing can be created from nothing. Nothing goes on forever. There is no such thing as a free lunch. No pain; no gain. If it sounds too good, it is.
4. The greater the supply, the less the value. “Printing” money causes inflation. You can have too much of a good thing.
5. Dollars are real and scarce. They can be held, stored and moved.

Every one of these common sense beliefs either is always false or often false, when applied to the U.S. federal government, because:

1. Federal debt is not a burden. Unlike state and local governments, the federal government cannot be forced into bankruptcy (except by Congress). It can service any debt of any size, any time.
2. Federal deficits stimulate the economy while surpluses cause recessions and depressions. The federal government, being Monetarily Sovereign, neither needs nor uses taxes or borrowing to pay its bills.
3. The federal government creates money by marking up the bank accounts of creditors, in a cost-free, pain-free, limit-free process. To the federal government, money is a “free lunch.”
4. Increasing the supply does reduce value, unless demand increases more. Money demand is increased by interest rates. Since we went off the gold standard, there has been no relationship between federal deficit spending and inflation.
5. Dollars have no physical reality. They are nothing more than numbers in bank accounts. Even dollar bills are not dollars; they are receipts or titles for dollars. Dollars are not scarce to the federal government.

These truths are counter to intuition, counter to common sense and counter to the beliefs of most Americans, yet they are truths, nonetheless.

Very soon, Americans will face the cold reality of recession or depression, caused by Congress’s and the President’s following their “common sense,” rather than economic fact. Federal spending for Social Security, Medicare, Medicaid, and many other vital federal services will decline. We will suffer “invisible” pain from the loss of scientific and medical research, declining infrastructure, a weaker military, poorer schools, less food and drug inspection, and worse investment protections. Our standard of living will decline. Unemployment will worsen. Destitution will increase. Our children and our grandchildren will lead meaner lives. Their futures will be impoverished.

And most Americans will not realize what has been done to them.

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 single, most misunderstood fact in all of economics. It will blow your mind.

Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
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When you ask the wrong question, you get the wrong answer. Congress and the President are asking, “How should we reduce the federal deficit?” The correct question is, “Should we reduce the federal deficit?” And the answer is “No.”
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Sometimes, something is so simple it can be hard to understand, as though “It just couldn’t be that easy.” This is one of those times.

The media don’t understand it. The columnists don’t understand it. The Tea Party, the Republicans, the Democrats and the debt hawks don’t understand it. For sure, President Obama doesn’t understand it. The old-line economics professors do understand it, but they’re afraid to admit it, because it makes them look like boobs for not telling you, all these years.

It is the single most important equation in economics. It’s so simple as to be laughable, yet it will amaze you (unless you are among the one-in-ten-thousand who already understands it). And once you understand it, you will look at the politicians in wonderment at their incredible ignorance.

Are you ready? Here it is:

Federal Deficits – Net Imports = Net Private Saving

This is not a hypothesis. It’s not a theory. It’s not my opinion or anyone else’s opinion. It is an accounting fact. In a closed economy (where money exports equal money imports), your annual savings, plus my annual savings, plus everyone else’s annual savings equals annual federal deficit spending, to the penny. In such an economy, Federal Deficits = Net Private Savings.

This means, if the federal deficit is reduced $1, our combined savings will be reduced by exactly $1 — not $.99; not $1.01 — exactly $1.00.

Today, the politicians in Washington are talking about a $4 trillion (!) deficit reduction. That means our savings will be reduced by $4 trillion. There are about 310 million people in America. A deficit reduction of $4 trillion will reduce the savings of each man, woman and child in America by an average of $12,900.

That’s $12,900 out of your pocket, another $12,900 out of the pockets of your spouse, each of your children and each of your grandchildren. A four-person family will lose $51,600 in savings. If both your parents are alive, they’ll lose another $25,800 in savings.

Why do the politicians want to reduce your savings? Sheer ignorance of Monetary Sovereignty. They think “deficit” is a bad word and want to eliminate it. But a federal deficit is money in your pocket. And a federal surplus? That’s money taken out of your pocket.

How can this be? Again, simple. When federal spending exceeds federal taxes, it’s called a “deficit.” When the federal government spends, its payments for goods and services enter the economy. When you pay taxes, the money leaves the economy. So federal deficits add money to the economy, and where does that money go? Into your pocket as savings. Similarly, federal taxes take money out of your pocket.

(If you want to see a longer, more erudite explanation, you might try Deficit = Savings, or Mosler letter to the President but I think you get the picture.)

Now tell me, how much would you like the federal deficit to be reduced? That is, how much of your savings would you like to lose? Tell your Congressperson.

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


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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

–Is NPR in league with the Tea Party, or simply clueless?

Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
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It was at 11:00 AM Central time, today, that I heard a discussion on National Public Radio, station WBEZ. The participants claimed the media are hamstrung by the need to present both sides of each issue.

They lamented the fact that “fairness” required them to give equal weight to opposing opinions, even when one opinion was far more persuasive than the other — and shouldn’t the media have more leeway in exercising their judgement on this?

Aside from the fact that columnists and editorials do exercise a form of censorship (aka “judgement”), there is one other aspect to the conversation that troubled me. The specific subject was the federal deficit. Both participants agreed the deficit must be reduced, so the “two sides” were: Raise taxes or don’t raise taxes.

As readers of this blog know, those are not both sides of the deficit issue. Those “two sides” are mere details in the real issue: Increase the deficit or don’t increase the deficit.

The media, including public radio, have been derelict in not presenting the “increase the deficit” side. And its not as though they don’t know or can’t find out. They easily can access such sources as this web site, Warren Mosler’s The Center of the Universe), Bill Mitchell’s Billyblog ), almost the entire faculty at the University of Missouri, Kansas City (far ahead of traditional Nobel winners like the University of Chicago and Harvard) and many,many others, to see powerful arguments, substantiated by facts, about why the federal deficit should be increased.

Why do they never broadcast these opinions and facts? It’s yet another puzzle surrounding the entire Monetary Sovereignty subject. Because “everyone” agrees the world is flat, the media don’t consider the possibility it may be round, so nothing is said.

There is only one solution. I’m following it and I urge you to follow it: Contact your local NPR station (www.mpr.org) and ask them to do as they claim to do: Broadcast both sides of the issue – the real both sides. If enough people request it, NPR finally may realize they are missing an important part of the economics debate.

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