The real cause of inflation

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In the U.S., 2021 saw 6.82 trillion printed up, 2022 brought 6.27 trillion of fresh ink, 2023 witnessed 6.37 trillion of printed money, and fiscal 2024 will see an estimated total of 6.8 trillion. 

That means in the most recent 4 years, the U.S. has created 26.26 trillion dollars from the nothingness.

Milton Freidman, having passed away at the age of 94 in 2006, has probably been rolling over in his grave. Maybe he has even dug himself out. The money printing has been thI keep hearing people blame inflation on everything from the proverbial greedy corporations to the super rich. Others blame high taxes, global warming and a host of other ills.

At times like this, I wish economics were a required class in all levels of schooling. 

Famous economist Milton Freidman correctly said “Inflation is always and everywhere a monetary phenomenon”.

Simply put, it means inflation is caused by too much money chasing too few goods. That’s kind of a brain twister for many. The “too few goods” part is based on the economic idea of scarcity. Scarcity simply describes the assumption in the theory of economics that goods (the physical things we buy) always have a finite number available to the consumer. 

That being said, since all goods are negotiated between suppliers and consumers by some sort of representation of value, outside of swapping one good for another, the most common representation of value is known as a currency.

Extrapolating that to Freidman’s quote, he is saying that inflation (the rise in general prices) is caused by an increase in the money supply (currency) from previous levels. In Money Matters terms, I describe it as the excessive printing of paper dollars by world governments. Think Mexican Peso and that might help you understand Freidman’s theory.

Since the U.S. dollar is the premier currency of the world, and there are more U.S. dollars in global circulation than any other currency, it could be said that when the U.S. undertakes massive money printing, the inflation it causes goes worldwide. Hence our global inflationary fires are now raging everywhere. 

It took the U.S. government 205 years to create or borrow more than one trillion in U.S. dollars it didn’t earn in income. In essence, we could say that one trillion was “printed”. 

Fast forward to today and the U.S. government is currently creating about one trillion dollars every 100 days. From 205 years to one hundred days is quite the increase!

If that wasn’t bad enough, enter the CoVid event. As a result of the shutdowns that followed, the printing presses in the U.S. and indeed worldwide went into overdrive. 

at bad!

If inflation is indeed ever and always a monetary event, than 26 trillion has and is going to continue to cause one heck of an inflationary event.  We could argue you ain’t seen nothing yet kids. 

The printing of U.S. dollars is carried out by the Federal Reserve (the FED), and the head of that institution is Fed Chief Jerome Powell. The FED is keenly aware that our current inflation rate is abnormally high and that it is ravaging consumer pocketbooks around the globe. 

The problem, however, cannot be solely addressed by the existing tools used by the FED. They can raise rates and take money out of the system through a variety of methods but they can’t hold back a tidal wave of money. At least not 26 trillion dollars’ worth.  

The tsunami of money does not seem to be abating anytime soon. Washington seemingly has no stomach for taking its foot off the monetary gas pedal. And coming into an election year is not helping. 

Neither side of the political aisle wants to be seen as uncompassionate bastards sticking it to an inflation-struggling constituency. As a result, more money is sure to flow in copious amounts in the months ahead.

In conclusion, since the flow of newly created dollars takes months to even years to fully make it into the U.S. economic system, and even more time to saturate world markets, it is hard to imagine inflation will subside anytime soon. In this analyst’s opinion, inflation will continue to pound the consumer worldwide. 

Only an radical reduction in spending by the mighty United States will slow this inflationary freight train, and the odds of that happening are slim to none, and it looks like Slim left town a long, long time ago.

Watching the markets so you dont have to    

advice, or a recommendation to buy or sell any securities, nor represents the opinion of any bank, investment firm or RIA, nor this media outlet, its staff, members or underwriters. Mr. Cuniberti holds a B.A. in Economics with honors, 1979, and California Insurance License #0L34249 His insurance agency is BAP INC. insurance services.  Email: [email protected] 

Marc Cuniberti

Marc Cuniberti

Marc Cuniberti
Host of Money Matters Radio on 67 radio stations nationwide, Financial and insurance columnist for the Union and 5 other statewide newspapers, owner BAP insurance and registered financial advisor representative at Vantage Financial. California Insurance License OL34249 and feature on ABC and NBC television and a host of TV documentaries on his financial insights.