Inflation Truth

- Inflation is just like alcoholism. In both cases, when you start drinking or when you start printing too      much money, the good effects come first, the bad effects only come later.

- Milton Friedman, economist (one of the best: JFL)

Inflation

To begin any discussion on the rise of prices, one must go to the root, product and demand for product. The law of supply and demand is a basic truth for any economy. The problem is the misuse of the information. Can you show proof, you ask? 

The truth of the matter is supply and demand does not change very much year to year. A nation and more specifically our nation, will sell the same amount of cars, washers and dryers, etc. every year. The growth in population or immigration are only the real tangibles that can add or subtract the totals.  Yes, a new product will change an outlook for a individual company, but items come and go with fads and copy-cat competition. There is also outside the normal situations like COVID or Bird Flu. If you look at the price of eggs due to Bird Flu, supply shrunk but demand was constant. Friedman said that inflation is caused by too much money chasing too few product. The chicken disease has pushed prices higher. However, consumers seek to evade inflation. They turn to pancakes or cereal or some other substitution. If I had the data on how many eggs were sold for 2024, I wager to bet that the total number is far less than 2020.  

Trump jumped on data like this in his campaign with the question, "Are you better off today than four years ago?" His opposition countered his idea for tariffs with the suggestion that tariffs will cause a rise in prices as producers will pass on the tax increases to you, the consumer. What they said is true, but Trump's point is to make US producers return to America. Just like we gained lower prices with imports that kept inflation in-check, a return of home-producing will pivot the pendulum for a future better economy in the US. By outsourcing, we lost social mobility, the middle-class, family life, a rise in homelessness, poverty and the rise in crime.

The only problem with Trump's tariffs is they are tokenism. To kill a disease, you need to cut it out. Our tariffs should not only be against China, but the whole world because they use our nation as a dumping ground to help their economy. They should be so high that producers could not evade the tax by shifting production to other foreign nations. Anyway, enough on supply and demand. Nations will always seek to gain an edge by currency manipulation, local laws and subsidies. This is life. We are guilty too. So, if  supply and demand is basically constant, where does inflation come from? 

Labor

After the costs of goods, labor is the next biggest expense. Dear Reader, do not look at the contract between Boeing and their workers as the standard. It is not. Regionalism with the cost of housing is a newer concern for producers and labor. Seattle's housing just like the Silicon Valley is extremely high. Workers cannot afford to live where they are employed. Housing costs has multiple supply chains with too many foreign suppliers, environmental issues like trees and lumber, infrastructure. This needs to be addressed for the health of the nation, but we are talking about labor costs. Generally, labor gets few wage increases. A standard raise has a range of 3% to 5%. Therefore, this could result in higher prices, but in the same price range. Sometimes, producers will eat this cost to maintain market niche. We conclude that rising labor costs can add to inflation, but nothing out of the ordinary as work wage increases are spread out throughout the nation and they come at different times. So, where does this lead too?

Federal Reserve

This crooked cabal was started with the idea to protect the wealthy and bankers in case their greed causes a money crisis. It has evolved to be a tool for politicians to make promises like tax cuts with the inside knowledge that the "money system" will cover the tab. Congress spends (both parties are guilty), the Treasury prints bonds for the spending and the Federal Reserve buys the bonds to conclude the transaction. 

Our government is so irresponsible that we do not even produce a budget and worse, we are running deficits of $2 trillion per year. Just to balance the budget, we need the combination of spending cuts and an increase in taxes to make ends meet.

Deficits

They are mostly financed by the Fed's creation of new money. They are guilty of another consequence in running the show. They pay banks not to use their money to which hurts the economy. Demand deposits in 2019 totaled $15.3 trillion. Today that figure is $21.1 trillion. My math says that is an increase of 38 percent. This is the root for inflation and why prices rose around 22% in the past three years. The Fed is printing 7% more every year to which eventually leads to a 7% devaluation of our purchasing power. Inflation is not going away until this practice stops. 

Under the auspices of "crisis management," the Federal Reserve has added 60 percent to the money supply and increased its balance sheet by 85 percent in just 16 years. 

Yes, you read that right. The Federal Reserve was founded in 1913. In the 95 years between then and 2008, just 40 percent of the money supply was created. In the subsequent 16 years, between 2008 and 2024, we have almost "tripled" the money supply. No wonder that we have inflation! Join our meme, "End the Fed!"  Peace.