Inflation Is Good for the Government, Bad for Us

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Okay, inflation. I know we’ve been talking a lot about this. Great piece today by Judy Shelton, as usual, in the Wall Street Journal, echoing again many of the things that we’ve discussed. And again, it is that important. And I’ve tried to get across to people just how bad inflation is for everyday Americans. But it’s not, you know, maybe bad for us, but it’s actually good for government. And what do I mean by that? How much higher?

You got Jackson Hole right this week. How much higher is the Fed going to have to raise the cost of capital to slay the inflation beast? You know, what is the role of the Federal Reserve in running the US economy? They’re going to be discussing all this and the pundits will be discussing all this. Last year at Jackson Hole, Jay Powell came out and he sent the markets into a

bit of a tailspin and he was warning that we’re going to have to forcefully battle inflation. That’s what we’re going to need to do. Higher interest rates, we need to have slower growth, we’re going to have to inflict pain on households and businesses because of inflation. Like this entire thing is our fault in the first place. And he noted last year, these are unfortunate costs of reducing inflation.

Okay, we’ve got rates where the highest they’ve been in 22 years. Has it taken a toll on the economy? Has it taken a toll on growth? Yeah, yeah, it has. Yeah, I know inflation numbers have drifted downwards. There’s no doubt about that. But again, are you feeling any richer out there?

Again, you get a lot of the pundits out there. Oh, look at this, Jay Powell has engineered a soft landing. Like it’s, you know, that movie Flight with Denzel Washington for crying out loud. Anyway, basically economic growth right now, current economic growth, household wealth is a hell of a lot less than it would be because of what the Federal Reserve is doing. But again,

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government doesn’t mind this. If you have a lot of debt, if you have a lot of debt and you’re paying back debt with money that is worth less than it was not too long ago, well then guess what? You’re paying back your debt with something that is of lesser value. Obviously this is very good for government.

Right now, Shelton talks about this, when the cost of capital rises, private enterprise takes a direct hit. Borrowers have to choose whether to absorb the extra cost, pass it on to consumers, reduce operations, whether or not they’re gonna keep workers on. Yesterday, there was an extensive article talking about how salaries are coming down. Employers aren’t paying as much anymore.

They have to decide whether or not, you know, what is it worth it to even stay in business any longer? It is a major obstacle for small businesses out there. I even look at it from my point of view and whether or not we’re going to do certain endeavors, acquisitions, whatever it may be, because the cost of capital has gotten too high at this point in time.

Again, we’ve seen it right now in regards to our housing market, existing home sales. They’ve fallen off a cliff. People don’t want to sell their home because they have such a low mortgage rate and they got to go out and get another one, they’re going to get whacked upside the head. Again, let’s look at it from our government’s point of view. They could care less. Could care less about higher interest rates. They continue to borrow with abandon.

You know, the rationale for huge budget deficits financed by massive government borrowing was that interest rates were low. That was what they were saying. Why not? I remember Paul Krugman, I’m gonna go out and borrow as much money as we possibly can. So the Fed has taken the rate to near zero to 5.2555. And what did our government do? They just kept spending. They just…

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kept spending. We’ve gone over the latest budget numbers. Increase in government outlays of 10% so far this year. This is at the same time we’ve had tax revenues down by 10%. CBO projecting that government spending will outpace revenue growth for the next 30 years, even though they’re all above historical averages as a percentage of GDP at this point in time.

Again, the Treasury doesn’t care. You pay whatever interest rate is necessary to get investors to finance government spending. Again, all of this extra debt is just piled on. Future calculations, budget deficits, government excess drives inflation. Jay Powell, unfortunately, has not addressed this problem one time.

where Paul Volcker did. Paul Volcker addressed this issue. Jay Powell and these people on the Federal Reserve, I can’t even take them seriously, quite frankly. They know exactly what’s going on. When government is unconstrained by budgetary discipline and monetary policymakers punish the private sector with high interest rates to rectify

the errors of fiscal policy, capitalism doesn’t work that well. And Shelton points that out today, she also points out again, something that we’ve been pointing out regards to the Inflation Reduction Act, one of the biggest outlays of deficit financed industrial stimulus since the new deal. And I know, oh, it’s an investment. Uh-huh, it’s not an investment. It’s not going to reduce inflation by any stretch.

of the imagination. It’s not. Again, you know, and Shelton points this out, you know, Frederick Hayek won the Nobel Prize in the Constitution of Liberty, stated, all those who wish to stop the drift toward increasing government control should concentrate their efforts on monetary policy. Again, political and economic freedom are interconnected.

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Expanding government control over the direction of the economy is cause for alarm. And again, the Fed is playing a huge part in this. Channeling financial resources. It’s part of, you know, the campaign. It’s their campaign issues right now. Presidential candidates, and again, we’re going to see if they even discuss this tonight, I highly doubt it, ought to have a view on the proper role.

of a central bank in a free market economy and should be able to answer specific questions about potential reforms. Should the United States monetary officials have a 2% inflation target? Again, I don’t know. I mean, is that really necessary? Again, again, you know, a lot of Keynesian people would, you know, feel that would

be the right thing to do. But is this a recipe for debasing the value of the dollar? Again, to me, currency means, we need to have stable prices is what we need to have. What the government is doing because of higher inflation is in essence, they’re taking that store of value and they’re stealing it from us.

and unfortunately most people they just don’t understand it. Watchdog on wallstreet.com.