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Inflation, politics, and excuses

With inflation at a 40-year high, the excuses run rampant. The solution might involve following a disliked, but sound, example.

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Inflation hit a new high of 8.6 percent last May. The politicians trot out every excuse in the book – and now someone has written a new one. But the solution might be right under everyone’s noses. And ironically, a “civilizational state” that has become a world pariah, might lead the way to curtailing inflation sharply.

The latest inflation news: the Consumer Price Index

The best example of the latest inflation news comes from Bloomberg News, through a site calling itself Advisor Perspectives. The Consumer Price Index saw an annualized increase of 8.6 percent through May 2022. That’s an increase of one percent from April.

The core Consumer Price Index (absent food and fuel) also rose one percent. But that might reflect fuel costs, too, because that’s the most prominent cost of transport of goods.

The problem is: everyone expected inflation to slow down, and it hasn’t. So what shall the Federal Reserve do? The same experts whom the latest CPI figures took by surprise, now predict interest rates to rise fifty “basis points” or more. For those of you asking, “Basis what?”: a basis point is one-hundredth of one percent. So that means the Fed will hike interest rates by at least half a percent – or more.

The Society for Human Resource Management tells us starkly that prices are rising faster than wages. They also break down the worst inflation offenders. No surprises here: they are gasoline (all grades), piped-in natural gas, and airline fares. Even electricity rates and food prices have risen by double digits.

Politico, citing the St. Louis Fed, tells us consumers are still spending. They’re probably spending it on food and fuel. But soon they’re going to start skipping meals – and maybe they already are.

What will Biden say – and do – now?

Almost everyone agrees that this report puts more pressure on the Biden administration. That will hold especially if the Fed decides to raise interest rates. They did this before, shortly after President Reagan took office. It almost cost Reagan a second term, and maybe only the Great Communicator could have survived the pain from the Fed’s action. But by the time Reagan and the Fed were through, they had beaten inflation. Your editor knows – because he remembers.

But so far, Biden has been making excuses, from coronavirus to the Russian “special military operation” in Ukraine. Five months ago his tongue really slipped, and he seemed to say inflation was a good thing. (Or maybe he said that in a fit of pique.) Now he, who once called inflation “transitory,” now admits it will persist.

But one other author has written a brand-new excuse book, which The Guardian reviewed. In Climatenomics, Mr. Bob Keefe blames inflation on the weather, and blames that on “climate change.” He claims that the world is noticeably hotter, and somehow ties every “extreme weather event” to global warming. But the review says nothing about how the Medieval Warm Period – or the subsequent Little Ice Age – affected economies worldwide.

A simple, but radical, solution to inflation

Neither does the book address the real reason that inflation can even happen. Which is that most of the world’s currencies are fiat money. (In Latin, fiat literally means “let something be.” It is a third-person command.) That especially includes the United States dollar, which today is the reserve currency of the world.

Rep. Ron Paul (R-Texas) has proposed an answer for sixteen years: end the Fed. He made two speeches on the subject in 2008 and 2009.

His son the junior Senator from Kentucky continues the refrain.

Abolishing the Federal Reserve would mean redefining the dollar as a standard weight of gold or silver. One advocacy group proposes 371 grains, or 0.773 Troy ounce, of silver. Even that amount would be more than seventeen times as valuable as a dollar today, at current spot prices.

What would a Fed-less world look like?

Aside from rolling back prices to 1960s-era levels, Danielle Kurtzleben at US News and World Report speculated in 2011 on what a world without the Fed would look like. A metal- or commodity-based dollar would shock the world monetary system, of course. But that system would soon settle down, because the dollar would have stable purchasing power. The value of a dollar might rise or fall but its trend could stay level, or rise slightly with mining of gold. (That is, unless someone finds a way to manufacture it! But that’s the stuff of science fiction, not to mention medieval fable.)

Ms. Kurtzleben shared the opinion of one Judy Shelton of the Atlas (as in Shrugged) Economic Research Foundation. Saving would become more attractive, for individuals and businesses. Politicians would have to face a hard reality: all spending requires taxation to fund it. Inflation is a hidden tax; without the Fed, that tax would come out of hiding. Boom-and-bust business cycles, if they didn’t end, would be far less pronounced. Financial regulation could become a private matter. Interest rates would no longer be subject to political calculation. Best of all, the banking system would cease to be an arm of the government.

One country points to a commodity based currency

Ironically the best example today of a country moving to a commodity based currency is: the Russian Federation. The Western world systematically shut Russia out of its monetary system. They couldn’t get dollars even if they wanted them.

So then the Russians decided not to bother! Instead they have tied their main monetary unit, the ruble, to oil, which they have in abundance. Now anyone who wants to buy Russian oil or natural gas, must pay in rubles. Vladimir Putin, at the head of Russia, is likely not acting merely from spite. He surely knows that a dollar is intrinsically worthless – which it has been since the Federal Reserve came to be. So he wants real value for value.

Far from decrying his policy, the United States should follow his example. Whether that requires the kind of crisis Russia faced, the American people must now decide. Some say the crisis is already upon us, whether from the highest inflation in forty years, or a spate of fires destroying grain elevators, chicken processing plants, and the like.

Yesterday’s inflation report tells us that the Biden administration has failed the American people even by its own terms. Other Western governments have failed their people, too. Central banks will not solve the problem, but will only make it worse. Moving away from central banks, to a commodity based currency, would then be the best policy. It is also part of making America a civilizational state – self-sufficient and independent.

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Terry A. Hurlbut has been a student of politics, philosophy, and science for more than 35 years. He is a graduate of Yale College and has served as a physician-level laboratory administrator in a 250-bed community hospital. He also is a serious student of the Bible, is conversant in its two primary original languages, and has followed the creation-science movement closely since 1993.

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