Source: AmericanThinker.com
Inflation has been summed up as “too much money chasing too few goods.”
Some contend that the recent uptick in price inflation is the result of an expansion of the money supply, and they date the start of that expansion back to the Spring of 2020.
That’s when the Federal Reserve began pumping trillions of newly-minted Fed dollars into the economy. The Fed’s money printing continued into 2022. Our current inflation, it would then seem, might just be due to “too much money.”
If you recall, the reason for the Fed’s massive money-printing was the government’s response to the coronavirus pandemic. The trillions in new money were for the government shutdowns of the economy.
Keep in mind that it was the states that shut down the economy, not the federal government.
No government can deny people their ability to make a living without giving them the means to survive. Unlike the federal government, the states don’t have a central bank that can create money. But with the $2.2 trillion Cares Act, Congress rode to the rescue and accommodated the states with the money to pay for their shutdowns.
So, the states shut down their economies, Congress backstopped the states, and the Fed provided the money.
But what if the Fed had resisted, and said to Congress: Go ahead with your bailouts of the states if you must, but do it without our help. We’re not gonna buy any more bonds. The Fed’s job is to protect the value of the (once) almighty U.S. dollar.
Given that, if Congress were still intent on providing the money so the states could keep their economies shut down, then they would have had to borrow it. The funds would have had to come from selling new U.S. Treasury bonds for pre-existing money, rather than from the Fed’s creation of new money to purchase pre-existing U.S. Treasuries in the aftermarket.
Had the Fed resisted and refused to yet again create money for Congress, the money supply wouldn’t have expanded. But if Congress had continued with their pandemic spending programs by borrowing, then the federal deficit would have risen. Deficit spending is said to be inflationary, but it wouldn’t have been as bad as having the Fed print the money.
We know that it was the Federal Reserve that caused the oversupply of “too much money.” But don’t forget about the other part of the equation: “too few goods.” What caused the undersupply of goods?
Well, it wasn’t the Fed.
One early action to tamp down the supply of critical goods happened on Jan. 20, 2021, Inauguration Day, when Joe Biden reversed the energy policies of his predecessor.
Those foolish policy reversals demonstrated a hostility to fossil fuels and the price at the pump for gasoline soon hit an all-time high. The price for diesel was even higher, and since most products are transported with diesel, the premium for diesel spread throughout the economy, and was tacked onto the price of everything.
Besides Biden’s dreadful domestic energy policy, his foreign policy on the war in Ukraine also affected oil prices. Europe should have parted ways with Biden and, in exchange for peace and the continued flow of reasonably priced oil and gas, amd promised Putin to not let Ukraine into NATO. Instead, Europeans are facing a brutal winter with skyrocketing energy prices and supply shortages. In some quarters, they are reduced to burning trash to stay warm. Unless Russia has a change of heart, some of our European cousins may freeze to death this winter….