Not Balancing Consumption With Production Means We're With Stuck Inflation

We will have inflated rates of inflation till we learn to balance consumption with production.

To explain our current inflation rate of about 7.8% (on a yearly basis), let's explain the recent past when our government in order to counteract the effects of COVID distributed $1 trillion to consumers, while at the same time “locked-up” industrial plants and small businesses, thus creating a strong imbalance in our economy, the effects of which we see now.

The Federal Reserve System did not help by providing the cash.

They have now increased interest rates, which make capital more expensive, thereby curtailing additional investments in industry, exactly the opposite of what is needed. Our last president, Trump, despite of his faults he, as a business man, understood economic facts, and during his administration he strongly supported the producing side of our economy. As a result, the inflation rate during his administration never exceeded 2.4%.

In contrast, the current administration has downplayed inflation (It is only transitory!) and, for political reasons issued more executive orders effectively making running a business more difficult and, in order to prevent a 1 degree temperature increase, restricted oil drilling.

The problem with inflation is that it hurts the poorest among us the most. According to The Wall Street Journal, the lowest 20% income groups spend 27% of their income on food. Here is where the 12% increase in food prices really hurts.

This creates problems or Mr. Biden, especially during an election year. It is, therefore, more tempting for him to dole out another trillion dollars to his voters. This will add another 3% on top of the present inflation rate

Adding to the dilemma are the unintended consequences of our sanctions on Russia. As a result, and according to the Journal, with the stroke of a pen, Mr. Biden took 25% of the world's wheat exports, 20% of corn exports and 20% of oil production off the market.

Many of us know what effect that has on our gas prices and on inflation.

Wheat has an especially hard impact on Arabian countries since wheat is a common staple. Popular unrest there can be expected.

That said, there also is a danger of creating imbalances of production.

Most periodic recessions in the periods between 1960 and 2000 were caused when more automobiles were produced than the market could absorb. This led to layoffs by automakers and significant reduction in buying power. It always took several years before the economy stabilized.

Considering these facts, the Federal Reserve Banks have to keep a delicate balance between the two extremes.

One way government can help is by keeping social experiments out of the economy.