How To Whip Inflation Now (WIN) In Five Easy Steps

Well, it's official.  The infamous "Inflation Dragon" has finally been rudely awakened after a long 40 year slumber, and what was thought to be merely "transitory" last year has turned out to be anything but.  This inflation has several causes, and the collateral damage from lockdowns (and the FERAL Reserve and federal government's attempts to paper it over with unprecedented spending, money creation, and rock-bottom interest rates), supply chain snarls, and corporate greed all played a part.  And that is before the most recent cause, namely the Russia-Ukraine war and the resulting sanctions that decreased fuel supplies and increased fuel prices, with knock-on effects on food prices as well.

We do know how to solve this though, despite the FERAL Reserve and federal government apparently being far too milquetoast to do so as of yet:

1. Raise interest rates, sharply and quickly, as high as it takes, until inflation drops below 3%.  Then, and only then, should rates be cut.
2. Shrink the Fed's massively bloated $9 trillion (!) balance sheet by ending Quantitative Easing (buying bonds) and beginning Quantitative Tightening (selling bonds).
3. Raise the reserve ratio to at least 10% and sterilize all excess reserves.
4. Suspend all fuel taxes for 90 days, if not all general sales taxes as well.
5. The federal government should buy fuel, food, etc. at a premium, and sell it to the population at a loss.  Just like the Pentagon already does with the military.  That would also incentvize production as well, and thus reduce the supply shortages that are the root cause of inflation.

And it should go without saying, but also we need to also end all remaining Covid restrictions and states of emergency, and yesterday is not soon enough.  And the Russia-Ukraine war needs to be brought to a swift and diplomatic end ASAP, or at the very least no further escalations.  The sanctions against Russia have basically served their purpose already now, so let's not cut off our proverbial nose to spite our face.

And even if raising interest rates high enough ends up triggering a recession like in 1980-1982, remember that persistently high inflation can have an even worse effect in the long run, so temporarily hiking rates is the lesser evil here.  And once inflation is under control, then cutting rates fairly quickly should ameliorate any lingering adverse effects of high interest rates.  Another round of stimulus checks may also be called for once inflation is finally beaten.

Raising interest rates works by increasing the demand for dollars via the reward for holding such dollars, thereby increasing the value of the currency.  It is this effect, far more so than the decreased supply of dollars, that really squeezes inflationary expectations out of the system.  Of course, keeping rates too high for too long increases "cost-push" inflation by increasing borrowing costs, so it is a balancing act.

As Rodger Malcolm Mitchell notes, the best way to cure stagflation is to 1) raise interest rates to cure the inflation, and 2) increase federal deficit spending to cure the stagnation.  Which is exact what happened in the early 1980s, albeit with a lag between measures 1 and 2.  Had there been no lag between the two, the effectively "engineered recession" may not have even occurred at all, or would have been much milder.  

As for oil (and thus gasoline, diesel, etc.) prices in the 1980s, well, the market ultimately worked its magic and the oil shortage eventually turned into an oil glut.  And prices subsequently crashed to levels not seen in a while, not to rise even close to their previous peak until decades later.  Funny how that works when markets are left to their own devices long enough.

One mistake NOT to make, of course, is government-imposed price and wage controls like Nixon did, which inevitably lead to shortages and rationing, making the problem worse in the long run.  Prices are essentially signals for the market, and trying to bluntly and artificially force prices down by legislative or executive fiat has a very long history of backfiring.  That said, a "windfall profits tax" on corporations would go a long way to taming the root causes of inflation from the corporate greed angle.

So what are we waiting for?

FINAL THOUGHT:  Some may argue that all of this inflation, and the policies that promote it, is a deliberate "controlled demolition" of the world's major currencies, so that the globalist oligarchy (WEF, IMF, World Bank, and all of their many tentacles including the various central banks and corporate banks) can usher in a global Central Bank Digital Currency (CBDC) and global Universal Basic Income (UBI) after crashing the dollar and other national (or supranational) currencies.  That may be so, thus the best thing that Monetarily Sovereign nations like the USA can do would be to 1) Increase the value of their own currency by hiking interest rates yesterday, 2) Issue their own UBIs (with truly NO strings attached) in their own currencies to pre-empt the globalists by beating them to it, and 3) Do NOT even THINK about phasing out cash in favor of purely digital currencies of any kind, and/or giving up the nation's Monetary Sovereignty to any global or supranational entity!  What the globalist oligarchs want is a totalitarian's dream come true, with plenty of strings attached in the form of CCP-style "social credit" scoring on steroids--and the worst nightmare for the rest of us.

JUNE UPDATE:  The Treasury has another tool they can use, the Exchange Stabilization Fund (ESF), to help increase production and thus reduce the large and widening mismatch between supply and demand.  That would actually target the supply side of the equation, something that merely raising interest rates cannot do.  So what are they waiting for?