From Inflation: What It Is, Why It's Bad, and How to Fix It. Steve Forbes, 2022. Kindle online sample. Section 1
Almost daily, people are shocked by media reports of double-digit increases in the price of food, gas, automobiles, and other essentials.
Adding to public anxiety is an ever-mounting level of government spending, causing federal debt to now exceed the size of the entire US economy.
Much of this massive obligation is being financed by the Federal Reserve, the US central bank (the “Fed”), through Treasury bonds that it pays for with money it created out of thin air.
This AGGRESSIVE SPENDING, COMBINED WITH THE FED’S MONEY CREATION, HAS UNLEASHED AN OCEAN OF DOLLARS INTO THE ECONOMY.
…
Between December 2019 and mid-2021, the money supply exploded by more than 35 percent, exceeding an astonishing $20 trillion.
Alarms have been sounding about the potential of so much “money printing” to create a dangerous inflation.
Among the first to voice concerns was Larry Summers, the Keynesian economist who served as treasury secretary during the Clinton administration, and later as chief economic advisor to President Obama.
He openly worried “we’re taking very substantial risks on the inflation side.” Summers went on to warn:
“WE ARE PRINTING MONEY, WE ARE CREATING GOVERNMENT BONDS, WE ARE BORROWING ON UNPRECEDENTED SCALES.
…
Those are things that surely create more of a risk of a sharp dollar decline than we had before.
Sharp dollar declines are much more likely to translate themselves into inflation than they were historically.”
Summers and others FEAR A REPLAY OF THE “GREAT INFLATION” OF THE 1970S, WHEN THE US ENDURED A DECADE OF DOUBLE-DIGIT PRICE INCREASES combined with a stagnant economy to create “stagflation.”
…
Officials at the Federal Reserve initially dismissed such warnings.
They insisted the price increases were “transitory”—the effect of COVID supply-chain disruptions.
Yet, by the end of the year, their tune began to change.
With inflation blowing past 6 percent, Federal Reserve Chair Jerome Powell conceded it was likely “a good time to ‘retire’ that word.”
President Joe Biden has shrugged off concerns about the price hikes and all that government spending.
Echoing an increasingly popular, far-left view known as “Modern Monetary Theory,” BIDEN HAS INSISTED GOVERNMENT SPENDING ACTUALLY SUPPRESSES INFLATION.
…
How does it do this?
Biden explained in a 2021 White House speech government “breaks up the bottlenecks in our economy.”
The president raised eyebrows even among Keynesian economists, ordinarily proponents of central-bank monetary “stimulus,” when BIDEN WENT ON TO ADD MASSIVE SPENDING ON INFRASTRUCTURE WILL ENHANCE OUR PRODUCTIVITY—RAISING WAGES WITHOUT RAISING PRICES.
That won’t increase inflation.
It will take the pressure off of inflation, give a boost to our workforce, which leads to lower prices in the years ahead.
…
Really? Events are still playing out.
But one thing is certain: confusion reigns when it comes to inflation.
From the fall of Rome to the housing bust and global financial crisis of 2008, THE MISUNDERSTANDING OF MONEY HAS LED TO COUNTLESS DISASTERS THAT HAVE DISORDERED LIVES AND SOCIETIES.
Much of the destruction could have been avoided if more people had understood the causes and consequences of inflation.
…
This book is a plainspoken discussion of why inflation happens, and why, contrary to the insistence of so many in Washington, DC, ALMOST ANY LEVEL OF INFLATION IS “BAD” FOR BOTH THE ECONOMY AND FOR SOCIETY.
As we observe in Chapter One, misconceptions about inflation are nearly as abundant as Zimbabwe dollars, Zimbabwe is one of the great inflaters of all time.
…
You’ll often hear fears a ballooning federal debt “will be paid for by future generations.”
These misguided perceptions have consistently yielded inaccurate inflation forecasts.
In late 2020, Fed officials predicted a minimal level of only 1.8 percent inflation for the following year, according to the Personal Consumption Expenditures index (PCE), their preferred yardstick.
Dream on.
BY LATE 2021, [BEFORE RUSSIA INVADED UKRAINE] THE PCE HAD SHOT PAST 5 PERCENT—AND INFLATION ACCOUNTED FOR 74 PERCENT OF NOMINAL GDP GROWTH.
…
Such bad forecasts, too often, produce bad policies.
No surprise, MOST INFLATION REMEDIES DEVISED BY “EXPERTS” MOST OFTEN FAIL AND USUALLY WORSEN THE MALAISE.
This is true not only of chronic hyperinflaters like Venezuela, but also of developed countries including the US.
…
The most notorious example of a failed remedy was the “Nixon Shock,” imposed by President Richard Nixon in 1971.
This misguided response by Nixon consisted of wage and price controls, tariffs, and, worst of all, abandonment of the Bretton Woods gold standard.
BY SEVERING THE LINK TO GOLD, IT TURNED THE ONCE ROCK-SOLID DOLLAR INTO UNSTABLE “FIAT MONEY” THAT FLUCTUATED ON WORLD CURRENCY MARKETS.
…
Nixon’s “Shock” plunged the world financial system into chaos.
It ushered in the “Great Inflation” of the 1970s, the energy crisis, and five decades of monetary instability.
WE ARE STILL FEELING THE EFFECTS OF THE NIXON SHOCK TODAY.
THEY INCLUDE THE 2021 INFLATION, THE FINANCIAL CRISIS OF 2008-09, AND A LONGTERM EROSION OF THE US DOLLAR, whose value, as defined by the price of gold, has dropped by 98 percent.
Like other calamitous “remedies” described in this book, Nixon’s “cure” failed because it exacerbated the fundamental cause of inflation.
That is, a decline in the value of currency—in this case, the dollar.
Since the invention of currency, all too many leaders have failed to understand MONEY, FIRST AND FOREMOST, IS A MEASURE OF WORTH.
To fulfill this role, and for markets to function, its value must be stable.
…
The 4,000-year history of money amounts to a repeated pattern where governments attempt to solve their various problems by altering their currency, typically decreasing its value.
The effects of this are so bad subsequent governments vow never to repeat these mistakes, yet somehow, they always do.
The great physicist ISAAC NEWTON WAS AMONG THOSE WHO UNDERSTOOD STABLE MONEY WAS AS FUNDAMENTAL A CONCEPT as his venerated Law of Gravity.
…
By the late nineteenth century, other European nations, as well as Japan, followed Britain and the US in adopting gold-based currencies.
The era of the classical gold standard saw an explosion of trade and innovation that, in many respects, remains unequaled.
In contrast, today’s political and economic establishment continues to cling to the idea “monetary expansion” to create “a little inflation” is necessary to “stimulate the economy.”
Over time, these attitudes have led to a continuing decline in currency values. THE ULTIMATE LESSON OF HISTORY— AND OF THIS BOOK—IS NO NATION HAS EVER GOTTEN RICH BY ERODING THE VALUE OF ITS MONEY.
(end of section 1)
… …
(own comments)
“Biden has insisted government spending actually suppresses inflation.
Massive spending on infrastructure will enhance our productivity—raising wages without raising prices.”
If this were true to increase productivity and suppress inflation all two lane and four lane bridges should be widened to six lanes, and all new roads and bridges should have at least six lanes.
…
“Between December 2019 and mid-2021, the money supply exploded by more than 35 percent, exceeding an astonishing $20 trillion. Larry Summers warned ‘We are printing money, we are creating government bonds, we are borrowing on unprecedented scales.’”
The answers to this and most of life’s problems:
1-Make the complicated simple. Money supply should follow GDP growth, GDP goes up 4% this year money supply goes up 4% next year.
In the future there will be only one common currency, helping to vastly simplify, make more efficient, and enlarge the world economy.
2-Focus on the long term not short term.
In tHAT future after Real Republicans have ascended and everyone is rich and can have wHATever they want, politicians won’t feel the need to put out economic fires because there won’t be any.
Comments
Post a Comment