Grow The Money Supply and Prices Will Follow
M2 and price levels (CPI) go hand in hand. The chart below trends backward many years further (you can click the link in the caption and see for yourself), however I wanted to zoom in on the 2020-2024 period. Despite the best efforts by the Federal Reserve and the Federal Government - there is no great mystery as to why the U.S. experienced runaway price inflation in 2020-2022 - it is because the money supply grew rapidly, thereby devaluing the Dollar.
It is one thing to grow the money supply when it is tied to productivity. For example, a bank loans Dollars to a U.S.-based fabrication shop that fabricates custom dashboards for one-off, high-end, automobile restorations. That bank loan helps the fabrication shop grow revenue, profits, and to hire more people. These elements work in cohesion to grow the economy (real GDP growth).
Contrast that example to the Trump and Biden stimulus checks. That money was created from thin air and handed to people in exchange for nothing. Those stimulus checks were not tied to productivity. In fact, they discouraged productivity as many people decided to sit on the couch (this is the welfare problem that Europe has had for decades). So what happened? Economic slack was introduced to the system. The money supply increased without a commensurate increase in productivity. Therefore, prices could only move in one direction - higher.
I fear we are setting up for another spike in price increases. The Federal Government is running multi-trillion Dollar deficits while the Fed is easing monetary policy.
If the economy slows, it is easy to imagine the Federal Reserve feeling the need to come to the rescue by taking rates to zero, printing money to buy bonds (QE) and for the Fed to print to subsidize fiscal stimulus (there is only so much demand for new Treasury securities).
It is easy to imagine the fiscal side taking deficits from $2+ trillion to $3-4 trillion to “stimulate” a weak economy. Given that the U.S. has $35 trillion in debt outstanding, it should not be running a deficit, period.
I would end deficit spending to save the Dollar and to preserve Americans’ standard of living - frankly, it would improve if spending was brought under control. Deficit spending weakens the U.S. from a fiscal, monetary and military perspective.
Prices do not have to move higher. Prices move higher because of the people we elect to office and the policies they execute.
Social Security, Medicare and many other welfare benefits have to be eliminated - as do income taxes (move to a national sales tax) - in order to save the Dollar. Otherwise, the Dollar will eventually be worthless as has been the fate of every other fiat currency in world history.
Time to put the U.S. back on the Gold Standard. Otherwise, there is only one way this story plays out. There is only one direction that prices will move. There is only one fate for the Dollar under the status quo.