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The free enterprise economy is the host; the bureaucracy is the parasite.
Rather than fight inflation by damaging the economy with rising interest rates to reduce aggregate demand by putting workers out of work and putting business out of business, the federal government can counteract inflation relatively painlessly. How?
When inflation rises above the desired level of two percent, freeze government payrolls and transfer payments, and also limit government spending to the prior year’s level. And don’t dilute the beneficial effect of reduction of inflation by later make-up payments and make-up expenses. Forbid new spending programs.
While the private sector is being savaged with rapidly accelerating interest rates, the Biden administration is considering five per cent or greater increases to federal payrolls and government benefits! They are pushing trillion dollar deficits.
Inflation is what the Fed is trying to cure by raising interest rates. Inflation can be caused by speculation that leads to excess borrowing. Cheap loans that fuel speculation are a typical cause. The additional money circulating in the system raises prices all over. Inflation can also be caused by shortages in the supply side.
A severe shortage of food will raise food prices, but prices rise all over so that people can afford to buy the smaller supply of food. A severe shortage of gasoline will have people spending less on some things, demanding higher wages, or both so they can afford filling up with gas. Sure, higher prices will result in lower purchases of food and gas, for example, but when the goods in short supply can’t be substituted, inflation kicks in.
The root cause in this case is excessive spending by the Federal government. They’re buying goods and services, lining people’s pockets all over, and those people are buying things, which drives up prices.
When speculation is the cause, raising interest rates makes sense. Investors must cut back on projects that have lower returns than others. Only “good” investments will attract investors. Raising the interest rate raises the bar for investing, which lowers investing, spending and inflation.
A negative effect of lowering investment is slowing productivity gains, which in turn fails to increase production with a lower per-item cost basis (the meaning of productivity gain). When cost bases do not fall, then prices cannot fall. The net effect of raising interest rates on investment is to maintain cost higher than possible if investments were made.
Shortages in supply, similarly, present an opportunity for businesses to invest in additional upstream production facilities, additional labor, productivity improvements, or all of these so that the additional earnings (profit) are captured.
On the other hand, faced with inflation businesses should invest in production machinery and methods to produce at lower cost, but hiked interest rates make that investment too costly to invoke. In rare cases the productivity gains possible may be larger than the cost of interest to invest in the expected gain. Supply shortages also present the same type of choice — can the business earn more by investing at higher interest rates than the cost of the interest? Businesses will invest despite the interest rate if either situation is true — but it entails risk.
The question then becomes: today are we faced with speculation-induced inflation or fiscal over-spending or market shortages, or perhaps all three?
The speculation part does respond appropriately to increased interest. The opposite happens when over-spending (injection into the money supply) or market shortages happen.
Note that speculation is a natural reaction all three situations: opportunists will figure what will gain in demand when over-spending occurs, when market shortages occur, or when others are speculating, and they will move their investments there.
If, for example, a shortage of housing occurs, builders will invest in more workers, more materials, more land, and so on. Opportunists will go upstream from housing and invest in wood, concrete, tools, and downstream in rental houses and alternatives.
Given the conclusion that raising interest rates when over-spending is happening and inflation has begun, is counterproductive, what should Powell at the Fed do or Yellen at the Treasury do?
Number one, let the prices of bills, notes and bonds drop to account for the loss in value that the market perceives — cutting the hand-in-glove arrangement between Yellen and Powell.
Number two, encourage businesses to produce more to head off inflation by achieving productivity gains — often Marxists want to tax “unseemly profits” caused by inflation or shortages, which then impedes investment in productivity gains. Taxation is punishment, and punishing those who foresaw opportunity is plain stupid.
Number three, go back to the drawing board on over-spending and on regulations that cause shortages. It was foreseeable that banning oil-well drilling, un-permitting transport of petroleum by pipeline, and granting huge tax credits to consumers for adopting electric alternatives to petroleum would result both in higher prices for petroleum-related industries and in shortages for electric vehicle related industries. Inflation was foreseeable.
Well most of us already know that whenever Biden The Clown tells us anything, he will always do the Opposite. Its the only thing that he’s consistent about. And those whole Alvin Bragg bs. They’re just still trying to find something to get on Trump and it it will do is prove him right. A failed prosecutor trying an already weak that has run out of the statute of limitations. OH boy. Where does George Soros find these guys!! One more thing. So now they (the Socialist Left) want to go after your washing machine. Uses too much water. OK lets bring back the washers with the SUDS SAVER built into them. Your mom owned one. Right. I did too. Its not rocket science here folks. Just common sense that the Liberal Left wants to scare you with.
Banks as well as large companies need to fail if true capitalism is to work correctly and smartly for everyone. These latest bank failures are due crony capitalism and protecting large foreign and domestic (woke) depositors, who did not follow sound business nor banking protocols. The SVB had huge foreign investors’ money, including from China and Russia (nearly a half a trillion dollars combined), and the Biden administration covered their losses with taxpayer funds, which should have been cover by removal of our debt interest payment to China rather than outright payment with taxpayer funds. This is also a move by our government and globalist to do away with traditional banking and replace it with electronic currencies, like bitcoin, to track and control our wealth and the ability to survive or obey the global powers to be instead of the freedoms we now have in our US Constitution! Every American must start to realize government cannot do everything without you giving up some or all of your freedoms! Less government for every social aspect of your life and more self reliance and responsibility means more freedoms for you and your families and less costly because inflation will drop as well as prices on everything!
Would have preferred a “no concern other option” but it still worked. I have been “banking” at credit unions for decades. Because they are member owned, they are generally unlikely to take unnecessary risks or delve so deeply into ESG nonsense in their lending and investing practices. They are also insured up to the same amount but by the NCUA instead of the FDIC. I cannot recommend them enough. And for AMAC members, PenFed is a solid option.
Money does not grow on trees. Yes, anyone who uses a bank will be paying for these Democratic cronies bailout.
When biden said this wouldn’t cost the taxpayer any money, he meant the biden family and their cronies.
Mr. Biden used our money to bail out depositors in these banks – several of whom were entities within the communist government of RED China! That is my greatest concern!
This is how the Great Depression started 100 years ago. A couple of banks then a couple more and pretty soon they all close. Don’t expect the government to bail you out. Where are they going to get the money? Our US government is in so much debt to to hand outs, etc.
Banking is just another institution that the left will politicize and weaponize. Only Democrat affiliated banks will be bailed-out. They might crash system to replace with CBDC and social credit score.
I see the problem as the US Government has no stake in the economy at all, they require us to make make the money to give to them to spend like spoiled children instead of earning it. If the government invested in the economy to raise their spending money, like our retirement plans do then this country would be quite different.
OMG…Si Senor!!!
My biggest concern is that the same people who told us the banks were ok in Obama days are telling us they are ok now… I find it very hard to believe them, and I certainly don’t believe the current administration.
If you are referring to the financial meltdown in 2008, those were the Bush days.
We are in a bad place. We have government and wealthy elites who want power, control and money. This instability could very well be part of the broader move to consolidate banking. All of the markets are connected. We could end up with inflation, stagnation or deflation. Interest rates will likely go down now, but the bond market has been devastated. This next six months could be quite the ride. Fixed income people are being crushed.
NOTHING happens by coincidence. The globalist want to collapse America and think that from the ashes they will bring about a 1 world government and 1 world digital monetary system, enslaving the surviving citizens (they want to reduce the world population 80%). We either reject their attempts by putting our faith in local owned banks and ride out globalist banks planned collapse, or we sink everything into gold and silver and try to survive. I personally think we support the local banks, do NOT create a run on them, and try to protect them (us) from government intrusion and invasive policies. We must ALL participate if we are going to beat them. Some day I hope to see them all facing charges and swinging in the gallows. When you combine everything they have done, and continue to do, it is more horrific than anything in history!
Seeing as how the Biden government is controlling my money I am TERRIFIED.
There is absolutely nothing backing our currency. It’s “fiat” money. And the more they print, the less it’s worth. And it’s printed on very expensive “cloth” (it’s not paper). So, it’s really NOT worth the “paper” it’s printed on.
If Biden, Yellen, and the lamestream media says we are OK, better be ready for a crash.
Liberal banks, liberal bailouts! The gave 73 million $$$ to “Black Lives Matter”! How much of that made it on to the DNC?!
There’s a difference between the two?????
Don’t discount the impact that the “fear factor” may have on the situation… The MSM is pushing that along with all of their other agenda “news stories”…
Agreed! Psyops plays a huge part in the globalists’ plans. Everyday they come up with something more bizarre than the last so that it has an affect on your mind. 70% of what they say, will not happen…until AFTER a collapse. They want us running around trying to put out all the little fires they set while they pull off the larger attrocities with little notice. The media is our enemy and you should shut them out of your life and depend on known sources that are actually trying to help expose the corruption and the ongoing attack on America. Ask your politicians why they are standing by and allowing the WEF, etc. to destroy our country. They cannot be so stupid they don’t know it’s happening, therefore, they are complicit.
Well there you have it . The step by step degradation of our core principles and values that was and has been enshrined in our constitution from the beginning of our republic. This cancerous disease must be cut out lest we fall into a marxist, socialist government ruled by dictators. We must continue to resist and fight each and every movement made by those who support this
abomination. Vote, speak out, challenge any and all attempts to corrupt our sovereign nation. With the help of God we will secure our nation as intended by our founding fathers.