Federal Reserve Action Just a Drop in the Bucket

If you've been putting off refinancing your house, it's probably a good time for it; rates won't get any lower.

The business pages say that the Federal Reserve is finally doing its job. They say that keeping inflation in check (well, really, keeping the dollar steady, stable and respected might be a better way to put it) is the Fed's purpose, and that is certainly true.

But it's not the whole story... and if you believe the media line that rate hikes from the Fed alone will put an end to this spiraling inflation, I have the deed to a beautiful bridge to sell you.

When thinking about federal policy, it never hurts to go back to the Founding Era, and remember where it all began.

During the War of Independence, we financed everything - our soldiers' salaries, their pensions and signing bonuses, their uniforms and arms, their powder and ammo - on credit. We sold bonds domestically, we took out foreign loans; we promised to pay our soldiers after we won.

Throughout that period, our "Continental" currency lost value every year, since our economy was a disaster area - as one would expect the economy of a war-torn nation to be. Even once we won the war, our weak government inspired so little confidence in the global business community, our money - issued by states and individual banks - remained virtually worthless.

A common insult for anything of limited value was the saying "not worth a Continental." Even our very language dismissed the American dollar as useless. Barter was the currency of the day, and you can't build a prosperous modern economy on that.

Two, three, four, five years after the peace was signed at the Hotel d'York in France, some states had still not paid their soldiers... and some states proudly had paid their debts, but with money so severely devalued that their payments really didn't do anybody much good.

The first economic goal of the Washington administration - as designed so brilliantly by Treasury Secretary Alexander Hamilton - was to take this outstanding war debt federal, to be paid by a new national bank, and the confidence this move would inspire would itself provide the needed foundation for a new economic system.

It was the stability of this new bank, and this nationally-accepted commitment to honor our debts, that spurred the economic boom of the 1790s. The fact of its presence, more than any specific choice made by the bank itself, stabilized the United States Dollar in those days.

Today's Fed is a far cry from that first Bank of the United States. We are a much bigger country today, so perhaps it's reasonable that the federal bank is huge as well, but it's difficult to imagine our Founding Fathers ever anticipating the federal government's bank growing so big and so influential. The Washington-Hamilton plan was to enable the private sector to be prosperous; they hoped for countless entrepreneurs and countless private banks to serve them.

Today's Fed officially sets the money supply, directs the printing of currency, even sets policy on how all those countless private banks maintain their reserve levels. It has morphed beyond the original idea of "the government's bank" to become an additional regulatory body.

Along with this considerable growth in its responsibilities, there has been a concurrent abdication of responsibility by the rest of our government.

When inflation threatens, politicians of both parties tap the brims of their hats respectfully and remind the crowd that "inflation is the Fed's role.... we hope they'll do their job and take care of us." Sure sounds like a dodge to me.

The Fed has become one of the politician's favorite tools, an easy place to point when the questions get hard, an easy scapegoat, toward which all blame for economic ills may be deflected.

Economists talk about the contraction or expansion of the money supply, and we laymen can relate when they put it terms like the interest rates on home mortgages, but frankly, though they don't like to admit it, the vast majority of what happens in the economy is out of the Fed's hands.

What does inflation really mean, anyway? It means your dollar buys less; it means that prices are going up. But why are those prices going up? Not because of the Fed, folks. Oh no. Not because of the Fed.

And if a problem isn't caused by the Fed, it stands to reason that there's a limit to just how much the Fed can really do to solve the problem.

Stimuli - Congress has passed, and presidents have signed, trillions and trillions of dollars in stimulus programs in recent decades, and especially since the beginning of the "pandemic" associated with the China Virus. These have all been unfunded, meaning, they have been on top of existing government budgets that were already in deficit territory. Government overspending either raises taxes immediately, raises taxes in the future, or is addressed by intentional devaluation. Either way, these Congressionally-created stimuli - trillions of dollars in checks, printed out of thin air - continually contribute to today's inflation crisis.

Welfare Programs - In recent decades, especially under the Obama and Biden regimes, we have maintained an intentionally porous border, practically inviting in (sometimes even paying to fly in) millions of foreigners, outside the normal process of legal immigration. These illegal aliens and their children are rightly barred from most forms of employment, causing them to work under the radar or not work at all.

As a result, the nation's safety net - programs funded either directly or indirectly by federal, state, county, and even more local governments like cities and townships - has expanded its deliverables. As these taxpayer-funded programs grow, they swell the size of government at every level. This increases the tax burden at every level, from sales taxes to property taxes to income taxes and social security taxes, reducing the real value of each individual's income. It's the very definition of inflationary.

Retail Purchasing Power - Whether we buy online or from a brick-and-mortar store, we see prices jump every day. Why? Well, all goods cost more to get from origin to store, thanks to the ballooning cost of transportation. Ocean and air import cargo, in particular, now costs four times as much to get here as it did two years ago, due to our local and state government-run seaports refusing to grow along with trade volumes over the years, until they reached a breaking point in 2020. Federally regulated railroads similarly resisted needed growth, resulting in a nationwide archipelago of railyard bottlenecks just as congested as our seaports.

The foolish environmentalist extremists and union activists of Los Angeles and Sacramento banned half the available trucks from their ports, throwing drivers out of work and contributing to the transportation crisis. Of course everything on every shelf costs us shoppers more; it costs the store infinitely more to get it for us.

Gasoline, Diesel, and Other Forms of Energy - One of the many challenges facing our truck drivers, causing transportation prices to skyrocket, is the one that hits us directly, as consumers, just as hard: the cost of fuel. Whether we drive our own car, minivan or SUV, or take a city bus, commuter train, taxi or Uber, they all have one thing in common: they are powered by energy. From the gasoline and diesel we pour into our vehicles' fuel tanks, to the energy grid that powers the machines in our factories, and heats and cools our homes and offices, all energy in America has skyrocketed in price over the past year.

Some of it is due to a few foolish state regulations, such as the decommissioning of nuclear plants. But most of it is due to thoroughly destructive federal policy, subsidizing inefficient energy sources with tax dollars, and punishing or outright closing off efficient energy sources. Almost immediately upon taking office, the Biden-Harris regime began issuing executive orders, directing agency heads to promulgate rules that instantly slowed exploration, development and production of energy on both public and private lands.

Energy is a commodity; as with any commodity, when there's a shortage - necessary or contrived - its price goes up. The Biden-Harris regime owns this too, and it's one of the largest drivers of our current inflation crisis.

Why do auto and property insurance premiums go up? Cities, counties and states refuse to prosecute robbers and drunk drivers, returning them to our streets. Why does rent go up? Cities raise the property taxes of the landlords, or hike the utilities that landlords build into their rent, or refuse to allow landlords to evict bad tenants, which unavoidably requires the landlords to build more profit into every lease, to be able to afford to carry the deadbeats our government won't let them cut loose. The list of unforced errors, committed by government, is endless.

In short, what causes prices to go up? What really causes inflation, at its root?

It really is as simple as that. Government choices - to overtax, to overregulate, to strangle production and transportation, to flood the economy with costs, turning what should be the greatest economic engine on earth into a sputtering, struggling old motor - these are the causes of our inflation problem.

But if you want to completely solve the problem - if you want to really set this economy free from top to bottom, so we can return to the prosperous land our Founding Fathers intended for us - then there's only one solution:

Changing the president isn't enough; purging the Pelosi/Schumer crowd from control of Congress is just a beginning.

The real solution requires focusing on our state capitols and governors' mansions too, and on our county boards and city halls as well.

And considering the fact that the year is 2022 - or as we call it in the United States, "a midterm year" - there's really no time like the present.

John F. Di Leo is a Chicagoland-based trade compliance trainer and transportation manager, writer and actor. A one-time county chairman of the Milwaukee County Republican Party, he has been writing regularly for Illinois Review since 2009.

A collection of John’s Illinois Review articles about vote fraud, The Tales of Little Pavel, and his 2021 political satires about current events, Evening Soup with Basement Joe, Volumes One and Two, are available, in either paperback or eBook, only on Amazon.

In short, what causes prices to go up? What really causes inflation, at its root?

Government.

From the article

The real solution requires focusing on our state capitols and governors’ mansions too, and on our county boards and city halls as well.

We need to get involved.

The nine most terrifying words in the English language are “I’m from the government and I’m here to help.”

Ronald Reagan

The list of unforced errors, committed by government, is endless.

Every fiasco, either major or minor, has it’s origin in “government” which has yet to realize that consequences are mostly unintended.

In 1980, the Fed raised the federal funds rate all the way to 20.0% to stop inflation after four years of Jimmy Carter. So far this year, the Fed has raised the federal funds rate from 0.25% to 0.5%.

There is no way that the Fed will raise rates high enough to stop inflation, because the U.S. economy is now dependent on extremely low interest rates just to stay afloat. So, the best-case scenario is that we are looking at moderately higher interest rates and several years of stagflation followed by a big recession.

The ten year note has moved to 2.375. The 10 year Bund has moved to .5 from -.3. Interest rates have all moved up. And the 30 year fixed mortgage is around 4.35%. The Fed is far behind the curve. If they raise rates every meeting for the next two years they may catch up. But they are not going to do anything about inflation.

Inflation is being caused by the decoupling of the world economy and the global elite’s war on cheap energy. Prices need to go up because China has been giving us stuff for less than the price to make it. That needs to be stopped. And once we get off our addiction to under priced crap, we can start seeing real pricing. That may take awhile and some things may get more expensive.

Cheez-its at Walmart $2.68->$2.88->$3.14

Taiwan Ixoras at Walmart $5.84->$7.84

metal sprayer for hose at Walmart $3.66->$4.97

Interest rates paid by banks should preserve the buying power of my money.

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