Inflation has soared from 2% to 6.2% in nine months
Inflation, as we all learned from our elementary economics text book, is too many dollars chasing too few goods.
Hold that thought and everything else falls into place.
Because this simple and inviolable law of economics and finance explains in one sentence why the Biden government spending bills have accelerated the rise in consumer prices to their highest rates in nearly 30 years.
Remember: there have been three massive spending bills flushed into the economy this year – already — and mostly financed with debt: the $1.9 trillion blue state bailout bill back in the spring and the $1.2 trillion infrastructure/green energy bill.
Tack on to that the $1 trillion COVID relief bill that passed during President Trump’s last weeks in office. These budget busters were mostly financed with more federal borrowing. And an unusually large share of the government bonds has been financed by the Federal Reserve Board buying them – that is with dollars that are printed and circulated into the economy.
As economist Larry Summers who served in both the Clinton and Obama administrations accurately predicted: these trillions of extra dollars sloshing around in the economy would raise inflation much more than President Biden or the Fed.
Right on the cue, inflation has soared from 2% to 6.2% in nine months.
On the Sunday talk shows last week the Biden White House spin was that this bill would ease inflationary pressures.
They think we are stupid. More government spending on social programs, increases consumer demand for goods and services, while reducing the supply. For example, the extended unemployment benefits and the free checks, rental assistance, and expanded food stamp payments pulled as many as 5 to 10 million Americans out of the workforce — so they weren’t contributing to output production. But we were all taking our portions of the “free money” and partying like it was 1995.
Now add free child care, free rent, free college loans, $7,500 subsidies for buying a Tesla, more free health care, paid parental leave for four weeks, and you will see an explosion of consumer demand with all the free money.
Meanwhile, the taxes on successful small businesses, corporations, stock sales, combined with the reduction in oil, gas and coal production creates a double whammy on prices.
For example, under Biden’s war of fossil fuels, America is now producing roughly two million FEWER barrels of oil. What does that do to the world price at a time of rising demand? It raises the gas price at the pump by $1.30 a gallon nationally over just one year ago.
That’s inflation right in your face.