Looks like someone told Congress that deficits cause inflation, but forgot to explain why (or Congress wasn’t listening to the explanation). How can you explain the Inflation Reduction Act of 2022 with a straight face?
massive spending package that Senate Democrats scheduled for voting on Saturday allocates funds for health careFighting climate change and controlling the cost of prescription drugs in exchange for raising some taxes, focused primarily on deficit reduction, would have little to no impact on inflation.
The label “reducing inflation” is being used to justify a hodgepodge of special interest spending that has nothing to do with inflation.
It is excessive wealth creation—printing more bills at the direction of the Federal Reserve, reducing the spending value of those already in circulation—not the deficit that causes inflation. Demand to control inflation to control the money supply.
So far, Sen. Joe Manchin, DWV, The driving force behind the Inflation Reduction Act, claims it torpedoed an earlier spending package (Build Back Better) with some of the same components for fear that it would contribute to skyrocketing inflation – and now claims that the table But the bill will help curb this.
Instead, the label “reducing inflation” is being used to justify a hodgepodge of special interest spending that has nothing to do with inflation. Beyond unnecessary tax hikes to offset losses, the Act proposes to compel drug companies to reduce prices. The money that will now be in people’s pockets will still be in circulation, however, even if it succeeds in reducing the cost of the drug, it will have zero impact on overall inflation. Similarly, although this leads to heated debate, global warming does not lead to inflation either.
It’s true that deficits—primarily how much more money a government spends each year compared to revenue from taxes—can sometimes lead to inflation because they are used by the Federal Reserve to help cover the gap. But can put pressure on printing money. But that’s not why Federal Reserve Chairman Jerome Powell printed the extra money that led to our current plight.
Instead, he printed the money starting in March 2020 because he feared the Covid pandemic would destroy the economy, and he didn’t think so. Printing that money will create inflation, He was wrong on both counts.
Powell has increased the money supply Nearly $6.2 trillion since the start of the pandemic (a 40 percent increase in cash in the economy and other assets that can easily be converted to cash). According to my calculations, a 40 percent increase in money would result in a nearly 30 percent increase in prices over three years, which is roughly 10 percent inflation for three years. Unfortunately, it looks like we’re on first year goal,
The Inflation Reduction Act intends to reduce the deficit to $300 billion. Even if minimizing the deficit did matter, $300 billion wouldn’t amount to a hill of beans in that calculus.
Although some students of history would like to point to former Federal Reserve Chairman Paul Volcker’s complaints about the deficit when he tried to tame inflation four decades ago, it was not central to his policy. and really, increased by losses From 1.55% of GDP in 1979 to 5.72% in 1983, they clearly did not rely on deficit reduction to account for lower inflation.
rather than, Volcker reduced the money supply through the interest rate It increased from 13.77% in October 1979 to 19.08% in January 1981. Controlling the deficit does not control inflation, not then and not now.
But the Inflation Reduction Act isn’t misnamed just because it won’t do what its title promises—it will likely make inflation worse by raising the cost of producing goods and services and reducing their overall supply. Higher costs and consequently less supply of goods mean that money circulating in the economy is used to buy fewer goods, which increases the price of goods, leading to higher inflation.
For example, the push to remove carbon from production specified by the Act is exactly the kind of extravagance that increases the cost of producing the goods. And while getting the bill subsidized for green-related spending will reduce the cost of buying these types of goods, an increase in demand will push the price back.
It’s hard to understand why Congress thinks it will reduce inflation. The need is of excess supply or low demand, not high demand. The Act seems to have taken this point completely wrong.
The part of the act that could help reduce inflation is ironically not what most Democrats want there: encouraging fossil fuel production. It can help to lower prices by creating more supply and reducing the cost of production goods, thereby setting lower prices.
Munchkin’s protest to build a better back Equally distinctive was their support for the Inflation Reduction Act based on inflation based on inflation. Inflation seems to be the new buzzword, used to justify any action, whether or not it actually drives prices down.
Powell is largely responsible for the inflation mess, and only he can fix it. But he is unlikely to do so anytime soon, as he has a lot of money to pull out of a fragile economy, and his main concern is probably not pushing the economy into recession by raising interest rates too high.