“Flattening Inflation” is Dishonest Approach by Feds & Biden

Originally printed in the March 30, 2023 edition of The Independent

“Flattening inflation easier said than done”

Probably everyone remembers elected and public health officials telling us that we had to “flatten the curve” of the corona virus pandemic. The unstated reason was to prevent hospitals and medical personnel from being overwhelmed by a dramatic surge in Covid 19 cases.

This is similar to a dentist advising a patient with a toothache that it would be better to pull the tooth slowly to prevent a sudden spike in pain.

We can argue all day whether the pandemic was handled correctly at the end of President Trump’s term and most of the Biden administration to date. But it is clear that people died, mostly elderly with preexisting medical conditions. It should be clear by now that the so-called vaccine is merely a temporary shot which doesn’t prevent anyone from contracting the virus.

Today we are facing the problem of runaway inflation and the prospect of a recession caused by the profligate spending of the Biden administration in response to the effects of the pandemic on the economy. Trillions of dollars cannot be shoveled into the economy thereby increasing demand without addressing supply issues without inflation as a result.

The Federal Reserve appears to be trying to flatten the inflation curve by tweaking the federal funds rate by 25 basis points at a time. (A “basis point” is shorthand for one-quarter of one percent or .0025%.) The result is that inflation is hovering around 6.5% month to month. The objective is to allow President Biden to say inflation is being held in check.

Some of us can recall the “stagflation” of the Jimmy Carter presidency when inflation was roaring above 14%. I turned down a job offer with a very good company in another state because the banks there told me I would find out what the interest rate on a mortgage would be at the closing. At the time the rate on a conventional, 30-year residential mortgage was around 18%!

The Fed chairman under Presidents Nixon and Carter, Paul Volcker, slammed the brakes on inflation by sharply decreasing the money supply and raising interest rates to 20% in mid-1981. The result was a shock to the economy. Nevertheless, when Volcker left office in August 1987 inflation had cooled to 3.4% and the economy was on its way to recovery.

Needless to say, politicians were not thrilled about Volcker’s strategy. Neither was the stock market which lost 60% of its value when the Fed jumped the federal funds rate by 100 basis points. The unemployment rate jumped to more than 10% in the recession of 1980-82.

In response, Volcker cut the fed funds rate to 8.6% by early June 1982 and the economy recovered. By 1983 inflation was down to just over 3%.

Today, both current Fed Chairman Jerome Powell and Treasury Secretary Janet Yellin want to avoid a repeat of the early 1980s. In 2021 Secretary Yellin told a House subcommittee, “No one wants to see that happen again.” She hasn’t changed her tune since then.

This is due in part to the need to protect doddering, 80-year old President Joe Biden who still claims he wants to run for a second term. With less than a 40% current approval rating a high unemployment rate and stock market crash would end his 50+ year political career.

Richard J. August, North Kingstown


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