Big Government And Inflation
The comments below are an edited and abridged synopsis of an article by Ron Paul
April’s 4.2% past year increase in the CPI is not likely to dissuade the Fed from continuing its policy of near-zero interest rates. Fed Chair Jay Powell believes rising prices are a temporary phenomenon caused by the ending of lockdowns releasing pent-up consumer demand.
This is just the Fed’s latest reason for delaying increasing interest rates. The real reason the Fed continues to keep rates low is that higher rates will cause the government’s interest payments to rise to unsustainable levels.
One way the Fed increases the money supply and lowers interest rates is by purchasing US Treasuries. This increases demand for US government debt, keeping borrowing costs low. An expansionary monetary policy thus enables increased federal spending and deficits. Since the lockdowns, the Fed has doubled its holdings of Treasury securities.
The real federal debt is $123 trillion, over four times larger than the $28 trillion official debt. The higher debt calculation includes the government’s unfunded liabilities, the biggest of which are the $55 trillion in promised but unfunded Medicare benefits and the $41 trillion in promised but unfunded Social Security benefits.
Congress could transition from entitlement and welfare programs by cutting spending on militarism and corporate welfare. Part of the savings from these cuts could be used to pay down the debt, and part could be used to provide payments for current/soon-to-be beneficiaries of government programs while we transition to a free market.
Unfortunately, there is not much appetite in Congress for spending cuts. This means the Fed will keep increasing its balance sheet in an effort to monetize skyrocketing debt. Eventually, the increasing debt and inflation will lead to a major economic meltdown. The meltdown will likely include a rejection of the dollar’s world reserve currency status.
The only way to avoid the crash is to spread the truth among enough people to force Congress to reverse course. Early steps in reversing course are blocking Biden’s big spending plans and passing Audit the Fed so the American people can \ know the truth about the Fed’s actions.