In these troubled times, we need to honor those who have endured significant struggling, suffering, and sacrifice to keep our federal government functional. A moment of prayerful pause, please, as I present a paean for the pitiable printing presses of the United States, who have been printing money non-stop since around January 2009 onwards to monetize the federal debt. They supply the lifeblood of federal machinery, federal chicanery, and federal sophistry. As their issue pours forth, the purchasing power of the United States dollar goes down. We’ll enjoy a concomitant rise in the prices of groceries and gasoline, labor and lumber, men and metals, as well as all manner of divers devices. Worry not, for this gushing of greenbacks will kindly leave our wages and pension payouts unaffected, I’m sure.
Inflation is, to quote Merriam-Webster, “a continuing rise in the general price level usually attributed to an increase in the volume of money and credit relative to available goods and services.” The more dollars there are being traded, the less each individual dollar is worth. Inflation is bad. Indeed, the mandate of central banks in most countries is to fight inflation, (or rather, “maintain price stability”). The Bank of England, European Central Bank, and Bank of Canada all try to keep inflation to around two percent. The U.S.
has stated that their Central Bank, the Federal Reserve, has a dual mandate; price stability and maximum sustainable employment. It has been doing neither particularly well.
Lest we blame the printing presses for the increase in money supply, the federal government issues money in ways that don’t involve banknotes, and money creation can happen via private actions as well as government-initiated ones. Money is often created via “fractional-reserve banking”. Bob puts money in the bank; the bank keeps a little but lends most of it out. *BAM* There’s now more money in the world than there was earlier. Banks are required by law to keep at least some of Bob’s money on hand, but most gets lent out. Banks not only “make money” (earn profit) by the issuance and repayment of loans at interest, but banks also literally make money (increase the money supply) when they issue loans.
The Federal Reserve creates money in similar ways. This is done primarily through selling bonds. The difference is that private agencies can suffer loss; each loan is a gambit that may or may not pay off. When the financial crisis of 2007 occurred and many mortgages went bust, money literally disappeared. No such limitation afflicts the Federal Reserve. The methods are more technical, but net effect is that money supply increases (thus inflation). This is functionally equivalent to printing money. How much has it increased? There are multiple ways of measuring money supply, but we’ll use “M2”. If you’ll forgive the use of a table, here goes.
January of the Year/Money Supply “M2” in billions of USD
1960 / 301.5
1975 / 908.7
1980 / 1486.2
1990 / 3170.4
2000 / 4672.6
2005 / 6403
2010 / 8461.6
2015 / 11756.1
2020 / 15416.3
2021 / 19409.4
The federal government has become a junkie. Just like the addict must take more and more to reattain that first-time high, the federal government must inflate more and more to achieve the same effect. We’ve seen this hyperinflation many times in history, with Zimbabwe and Venezuela being the most recent. You may recall the federal government hyper-inflated its first currency, the Continental.
Lest we lose focus on what matters, inflation is morally bankrupt. It taxes us in ways that are underhanded and difficult to measure. It destroys savings… not just ours, but the many other countries that use the U.S. dollar as their primary currency or hold it as a reserve currency. It messes with finding out accurate ROIs. It raises prices for food and other staples, and in doing so hurts the most vulnerable among us, especially those on fixed incomes. It is the most craven and cowardly manner of taxation.
Let’s not do the blame game. Don’t blame the companies for raising their prices. Weimar Germany tried to use companies as scapegoats as they hyper-inflated their currency, and when that stopped working, they found other scapegoats (hopefully I don’t need to tell you what that led to). Conspiracy theories are similarly unhelpful. Blaming a party, ideology, or generation burns bridges that we need to be building. Instead, let’s focus on solutions. I may propose a few later, but for now just wanted to shine a little light on the scale of the problem. Just don’t be surprised when price hikes that were supposedly due to “disruptions” never come down, and the sticker shock at the register has a bit more bite. Above all else, don’t engage in monetary counterfeiting; the federal government doesn’t abide competition.
Tim Born