The Reasons We’re Suffering Inflation

The simple answer to why we have runaway inflation now is a government that has mishandled a series of situations.

We start with 2009. At the time our Congress and the administration passed and signed legislation that began an unprecedented, peacetime increase in our debt.

As we moved through the next short period of time our economy was still looking for recovery and equilibrium after the financial crisis and we were in a recession. The Obama administration was a believer in Keynesian economic theory that government could spend more to offset an economic downturn. What was missing from the application of that theory is Keynes thought government should spend less when economic recovery began. But Congress didn’t stop spending despite recovery.

As our debt increased, the sale of that debt was not left to the market. Instead, the government, via our Federal Reserve, stepped in to reduce interest rates to keep the economy going and for that burgeoning debt. In doing so it artificially reduced the cost of that debt to the government. The Fed did this by what it called quantitative easing. What that fancy phrase meant is the Fed started buying our government’s debt, something that had not been done before. It hadn’t been done because you and I can’t buy our own debt when we can’t afford to pay for it in the first place. It’s counterintuitive to think otherwise. We simply call it bankruptcy.

But the Fed decided it could do it even though it didn’t have the money. It’s ‘independent’ but still part of the government. The difference between you and me and the Fed is that it can print money. So that’s what it did. It printed trillions of dollars to buy government debt to keep it off the market.

Then comes 2020 and COVID-19. The government shut down our economy to supposedly stop the contagion. It was listening and acting on ‘expert’ epidemiologists’ recommendations, ignoring the economic impact of most everyone losing their jobs and incomes.

So, to offset the loss of incomes, the government passed several COVID relief packages which gave most everyone money. Again, multiple trillions were added to the debt. The Fed accommodated more government debt by continuing to buy it.

The more debt the US government has accumulated, the more money has been printed. Economics 101 – increase supply and the price goes down – and vice versa. So, the increased supply of money has made the dollar worth less – meaning it takes more dollars today to buy the same things we bought yesterday.

Enter 2021. A new administration takes over the White House and the executive branch of government. A friendly Congress accommodates another “COVID relief” package totaling trillions of dollars. It added more trillions with an ‘infrastructure’ bill. More debt, more money printed.

If you’re with me so far, you understand our government has been spending trillions and trillions more than it has. That translates to the analogy of sitting on a powder keg. It didn’t blow up, so we sat on bigger and bigger powder kegs.

But this administration wasn’t satisfied with that. Its agenda called for eliminating the use of fossil fuels to generate our energy. So, in addition to shutting down pipelines it ceased the leasing and use of public lands to drill and to exploit natural gas extraction from shale. It decreased the supply of oil and gas available to the US and the world, reducing the supply of both, and therefore raising the price of both.

That not only made oil and gas more expensive, but it also increased the cost and therefore the price of everything that requires transport to various markets to be sold.

The Russian invasion of Ukraine this year only adds to the problem, especially the way it’s being handled by our government.

Investors became leery of economic growth as it now looks like the consumers must cut back on buying. In addition to feeding inflation by printing money, the Fed now has to try to offset raging inflation by raising interest rates and cutting back on quantitative easing. Investors in the stock market saw big trouble coming on the economic horizon and began selling their holdings. The more stock (supply) available the lower its price and the values of citizen retirement funds are way down.

Our government has put itself between the proverbial rock and a hard place. It can exacerbate the problem by spending more of what it doesn’t have. Or, it can begin to ‘right the ship,’ stop the massive deficits and cascading value of the dollar and begin acting like it wants to help the citizens of the country who are losing what confidence they had it their government to do the right thing for them.

Political hacks apparently don’t know anything about what they’re doing and the collateral damage they’ve caused and have given no voice to real economists who understand what happened and what’s happening.

Since the plurality of voters have little confidence in either Political Party doing what needs doing, the outcome of the mid-term elections will likely not change the destructive path we’re on.

But maybe, just maybe, shrinking middle-class voters can/will still be heard if a new set of knowledgeable governmental leaders is elected before it’s too late.

Hope springs eternal.

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Have a great and prosperous week.

Hug somebody.

SPIDER Bites

Kosher salt is different from table salt in that it 1) contains no iodine and 2) is lighter and flakier – generally preferred by chefs. Sea salt is also less processed than table salt, lighter than table salt, has natural iodine and more minerals.

Did you know the Hoover Dam was called the Boulder Dam until 1947 when it was named in honor of President Herbert Hoover?

NSASA, the UN and the UK Met office predict snow will disappear in 10 years. It will disappear in 10 years beginning in 1975, in 1982, in 1995, in 2005, in 2010, in 2015, and 2020.

Hearings on the “equity” nomination of Ketanji Brown Jackson to the Supreme Court are underway. Everyone knows the final vote.

So, let’s understand the strategy. We just slammed the biggest economic sanctions on Russia. Our President is calling Putin a war criminal and sending gobs of military support to Ukraine. Through the fog and apparently seen only by the administration, at the same time we’re involved in negotiating a new deal with Iran being brokered by Russia, yes Russia! When asked about it, Press Secretary Psaki responded: “Well, I would say that it is not in our interest for Iran to acquire a nuclear weapon.” Apparently, the deal would lift crippling economic sanctions on Iran and officially allow it to continue its program of enriching uranium. A nuclear Iran would be a tragedy for The Middle East and the rest of the ‘infidel’ world already threatened by Iran sponsored terrorists. You get it now? The strategy is apparently to undo everything the previous administration did, regardless of merit. That strategy seems to be the theme all over the policy arena. But “Don’t worry, Be happy.”

Speaking of the Middle East, does anybody up there remember ‘peace breaking out’ in 2020? United Arab Emirates, Bahrain and Sudan – joining Egypt and Jordan – normalized relations with Israel. Other Arab/Muslim nations began making noises about getting on board the “peace train.” What happened? Those ‘infidel’, non-Shiite (Sunni) nations are targeted by Iran’s Shia theocracy as well. Oh well.

President Zelensky, the supposed 2022 George Washington with Ukraine the latest standard of democracy, outlawed his major opposition political party’s existence last week. Previously he shut down the three, national TV stations airing government criticism. Russia invading Ukraine was wrong, but so is calling Ukraine a democracy.

Well, what do you know? The NYTimes admitted last week the Hunter Biden laptop story wasn’t “Russian disinformation” after all, and the laptop – with its emails – is real. Those 50 former, national intelligence officials who signed a document stating it was Russian disinformation also lied. Twitter and Facebook joined in on deleting the truth. Will anyone be held accountable for manufacturing and maintaining that lie? Does anything now happen with the contents of the laptop? Don’t hold your breath. That’s democracy in the deep state and the media at work.

Now there’s members of Congress advocating for another ‘relief’ package to help consumers pay the cost of inflation. Meanwhile, CA Governor Newsome is proposing a $400 debit card for car owners. What? That would feed inflation even more. Who are these people? It seems this administration (and Congress) will twist itself into a pretzel to keep anyone from drilling.