Author: Henry

The Fed Is Not Controlling Inflation

The Fed Is Not Controlling Inflation

Inflation isn’t going anywhere. Just look at the latest data from Europe, Canada and the US, and the Fed’s claim that inflation will subside has no credibility to it whatsoever. And the ECB can’t afford to let prices rise and risk their credibility when they have just released their rate cut.

The Fed has done everything it could reasonably do to stimulate growth. It didn`t spend enough to make the economy strong, and certainly didn`t spend enough to avoid a recession. Its $700b in quantitative easing is now exhausted. But it might as well go on spending now — as it did in 2007/2008 — as it might as well use the QE to lower interest rates now, as it did in the late 1990s. The Fed would get the same result: higher inflation.

The US is, by far, the best place to play the inflation game. Consumer prices there are already 2% higher than they were in late 2008, and there is no inflation. (Even the ECB is talking about inflation of 10%.) The US has not had inflation for 30 years. It`s the highest inflation rate we have ever had in history, and the last time it rose more than 2% was in 1968! So it was certainly possible for the Fed to get that rate under control. If it had used quantitative easing in 2005 for example, the result could have been inflation of 5% or more.

But it doesn’t matter what the Fed does. No one can control inflation, because it is not controlled by them. So, what do the central banks do? They keep printing money.

The trouble is that if you are using money printing as a tool to control inflation, you need to start to realize that the printing is not helping you. Printing money doesn’t lower the cost of living so much as it increases it.

If you were to print $100 billion, and $20 billion of that was spent on infrastructure, you would have an economy with $140 billion less infrastructure than you would have if you spent the $20 billion directly on the economy. So where would you get the money for that new infrastructure? You would have to be willing to borrow it. And even if you did, you would have to pay it back. So you would have $140 billion less in revenues to spend for new infrastructure, and that

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