Powell and Biden Ought to Mimic Volcker and Reagan’s Inflation Solution – Opinion

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For months, Biden administration officials have downplayed the current bout of inflation as “transitory,” suggesting it is only a temporary problem that will abate sooner rather than later.

On November 30, while appearing before Congress, Federal Reserve Chairman Jerome Powell delivered quite a different message, saying it is time to “retire” the word “transitory” when referring to the 6.2 percent rate of inflation—a 30-year high—that is ravaging the U.S. economy.

According to Powell, “We tend to use [the word transitory] to mean that it won’t leave a permanent mark in the form of higher inflation. I think it’s probably a good time to retire that word and try to explain more clearly what we mean.”

Powell added, “It now appears that factors pushing inflation upward will linger well into next year.”

Merriam-Webster defines “transitory” as “of brief duration.” Although time is relative, it is a stretch to describe inflation as transitory when it has been worsening for nearly a year, with no end in sight.

Powell suggested that inflation’s economic underpinnings are not likely to change anytime soon. These indicators suggest that persistent inflation may be on the horizon for a longer time.

Consider first and foremost the massive amount of money that the Federal Reserve has poured into the U.S. Economy in the recent years.

In 2008, the Federal Reserve’s balance sheet totaled less than $1 trillion. In 2019, the Federal Reserve’s balance sheet was nearly $4 trillion. By November 2021 it had risen to $9 trillion.

The Federal Reserve’s money supply, referred to as M2, has also increased substantially in recent years.

The U.S. currency supply reached $7.5 trillion in 2008. In 2019, the U.S. money supply had nearly doubled. It has now surpassed $21 trillion as of the writing.

In other words, the groundwork for today’s inflation has been years in the making.

But that doesn’t mean that the Biden government is not responsible for widespread inflation, which has been more persistent than temporary.

To date, the Biden administration has passed the $1.9 trillion American Rescue Plan, $1.2 trillion “infrastructure” plan, and is on the verge of passing the largest spending bill in U.S. history, the $3.5 trillion Build Back Better Act.

Keep in mind, the profligate spending by the Biden administration comes on the heels of trillions of dollars in so-called COVID-19 relief funds passed during the final year of Donald Trump’s presidency.

However, Biden’s over-the-top spending is only part of the reason that inflation has skyrocketed since he stepped into the Oval Office.

Many other policies that President Biden has misguided are often overlooked but crucial to the growing inflation crisis.

For instance, Biden’s decisions to immediately terminate the Keystone XL pipeline and stop all new oil and natural gas permits on federal lands have caused the cost of energy to rise by 30 percent year-over-year.

Making matters worse, Biden’s vaccine mandates—which remain in flux due to federal court stays—have led to what many call the “Great Resignation.”

There is no doubt that fewer Americans will work due to the generous welfare benefits and vaccine mandates. The cost of labor rises which causes higher inflation.

U.S. economic disruptions are severe, with the shortage of truckers (80,000) among them. Biden’s vaccine mandates, lavish social spending, and other misguided policies are partly to blame.

As Powell explained, “Supply chain problems have made it difficult for producers to meet strong demand, particularly for goods. Increases in energy prices and rents are also pushing inflation upward.”

There is plenty of time to make a correction. It is possible for President Biden to declare inflation “transient” in the traditional sense.

Biden must reverse the anti-fossil fuel agenda. In less than a year, the United States had become energy self-sufficient. We have the capacity to become the world’s leader (again) in oil and natural gas production. The cost of American energy would plummet due to the lack of it, which will result in a decrease of almost all other goods and services.

Zweiten, Biden should drop the $3.5 Trillion Build Back Better bill. American is already rich in cash. It is urgent to reduce government spending before it gets too costly.

Third, Chairman Powell needs to end the Federal Reserve’s money printing binge. To many dollars being spent on fewer goods and less services is what causes inflation. It is time for Powell to raise interest rates while reducing the Fed’s balance sheet.

In the beginning of the 1980s the U.S. economic situation was similar, with the economy struggling to withstand stagflation.

Reagan cut regulations, increased energy output, reduced spending, and cut welfare which helped to goose the economy. Paul Volcker (Federal Reserve Chairman) increased the interest rate to 20% to reduce inflation.

It worked. America prospered after Reagan, Volcker and others gave it the hard medicine it needed. This was for many years. We can do it again.

Chris Talgo ([email protected]) Senior editor, The Heartland Institute