Most people mistake rising prices for inflation. Inflation occurs when a Central Bank creates money at a rate in excess of the rate of wealth creation that theoretically “backs” the additional currency. Simply stated, the ratio of additional money supply to additional “widgets” is rising.” Rising prices are the evidence that inflation has occurred. The amount of money created (“money” as defined by Austrian economics) has dwarfed the amount of wealth creation since 2008. This is why rising prices have not become a “transitory” phenomenon.
The Government and the Federal Reserve is faced with a tough choice: immediate systemic collapse or death by a thousand cuts. If the Fed caves in to political and public persuasion and “pivots” by abandoning QT and rate hikes, it will further defer the inevitable and further fuel rising prices. If it continues on its course, in all likelihood 2008’s great financial crisis will become this year’s great financial collapse. But the Fed (and the Government) has already signaled its decision when it engineered the recent de facto bailout of the banks. And the uninsured depositors at SVB and Signature bank were not only ones bailed out. Citibank fed prolifically at the FHLB loan trough (which is part of the Fed’s balance sheet) over the last several months. And now this country must accept a Hobson’s Choice, which is to say there is no choice other than the path offered by the Fed.
GATA’s Chris Powell wrote a must-read analysis/commentary for the Manchester, Connecticut’s “Journal Inquirer.” It’s a shame that this piece is confined to a local newspaper in the northeast. It should be republished in every major newspaper across the country.
In their recent endeavors to spend ever more money than is backed by the economy’s production, members of Congress and presidents have been emboldened by the failure of the public to wonder what causes inflation, the devaluation of their money. For inflation is the main danger with money creation, and the country and the world are already suffering an inflationary disaster…If the United States can’t keep borrowing more from the rest of the world — money that will never really be repaid, since the debt keeps growing and is used to repay earlier debt — the country will have to start living within its means. Or else the government will have to create so much more money that inflation will increase many times more than the current official and already much underestimated rate of 6%.
Read the entire commentary here: Living on our own earnings is the real threat of the debt ceiling