• Tag Archives inflation

  • Online Encyclopedia Declares Inflation a ‘Right-Wing Talking Point’ in Response to Hit Song

    Posted on by Azrael Comment

    A new folk song with edgy lyrics is causing quite a stir in America, and it’s not “Try That in a Small Town.” 

    Oliver Anthony’s blue-collar anthem “Rich Men North of Richmond” exploded across the internet, racking up 66 million views on YouTube since debuting last month. 

    Anthony’s mournful ballad has an almost Depression-era feel. Sporting a bushy red beard and a twangy guitar, the Virginia native channels the struggles of working-class Americans while strumming away in the woods in front of what appears to be a hunting blind. 

    I’ve been sellin’ my soul, workin’ all day / Overtime hours for bulls*it pay / So I can sit out here and waste my life away / Drag back home and drown my troubles away. 

    It’s a damn shame what the world’s gotten to / For people like me and people like you / Wish I could just wake up and it not be true / But it is, oh, it is. 

    Livin’ in the new world / With an old soul / These rich men north of Richmond / Lord knows they all just wanna have total control / Wanna know what you think, wanna know what you do / And they don’t think you know, but I know that you do / ‘Cause your dollar ain’t sh*t and it’s taxed to no end / ‘Cause of rich men north of Richmond

    The song has resonated broadly with listeners, but it has also become a sort of political bellwether with lyrics that take aim at taxes, inflation, and welfare. 

    The Los Angeles Times notes Anthony’s song has been criticized by leftists, who’ve dubbed the tune an “alt-right anthem” that’s “offensive” and “fatphobic.” The Guardian, meanwhile, accused Anthony of “punching down” and mocking the poor. 

    Right wing pundits have seen things differently, including Matt Walsh who called the song “raw and authentic.”

    “One interesting thing about ‘Rich Men North Of Richmond’ is that he (rightly) attacks the welfare state,” tweeted Walsh. “Many conservatives think that it isn’t populist to criticize entitlements but in reality blue collar Americans are sick of having their money stolen to prop up a system that functions as nothing more than a vote buying scheme for Democrats.”

    It’s not exactly a surprise that Anthony’s hit song would be received differently by the left and the right, which increasingly operate in different cultural ecosystems with totally different values.

    But some are getting a bit carried away in the effort to turn Anthony’s blue-collar tune into a right-wing screed.

    Wikipedia’s page on ‘Rich Men North Of Richmond’ initially claimed that “the song’s lyrics revolve around common right-wing themes such as inflation (the dollar ain’t sh*t)… .”

    Did you catch that? Inflation apparently is now “a right-wing talking point” instead of an economic phenomenon broadly defined today as a general and sustained increase in consumer prices and a decline in the value of money.

    Wikipedia’s claim, which is now slightly reworded (following my tweet), is bizarre. There is nothing partisan about inflation, after all. It affects everyone. Rich and poor. Republican, Democrat, and Independent. People of every sex, race, and creed.  

    For decades, the term “silent killer” has been used by scholars, economists, and financial asset managers to describe inflation because of the gradual and often unnoticed erosion in purchasing power it causes. 

    Inflation has destroyed civilizations (Rome) and ushered in totalitarian regimes (Mao in China), which is why it has been decried by an array of intellectuals who were hardly “right-wingers.” 

    The writer Ernest Hemingway, who moved to Spain during the Spanish Civil War to oppose Franco and wrote for Pravda because he hated fascism so much, called inflation “the first panacea for a mismanaged nation.” (The second, he added, was war.)

    John Maynard Keynes, the staunch anti-conservative English economist who became arguably the most influential macroeconomic thinker in history, warned in 1919 that Vladmir Lenin “is said to have declared that the best way to destroy the capitalist system was to debauch the currency.” 

    “By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens,” wrote Keynes. “The sight of this arbitrary rearrangement of riches strikes not only at security but [also] at confidence in the equity of the existing distribution of wealth.” (emphasis added)

    More recently Lawrence Summers, the former President of Harvard and an economist that served in both the Clinton and Obama administrations, warned that inflation is undermining confidence in the American political system. 

    “It’s clear that inflation is significantly contributing to distrust in the institutions and to pessimism about the future,” Summers recently told The Harvard Gazette. 

    Clearly, one needn’t be a right-winger to be concerned about inflation. Anyone who goes to McDonald’s and is stunned to see a $50 receipt after ordering a few burgers, fries, and drinks has a right to be concerned over the erosion of their money.

    None of this is to say that there are no political undertones to Anthony’s song. There clearly are, and this fits snuggly in the long tradition of country music. 

    Anyone who has ever listened to Hank Williams Jr. or David Allan Coe or any number of artists can tell you weaving poverty and politics into songs is hardly out of the ordinary in the country music genre. Consider these lyrics from a popular song from Alabama tune, “Song of the South”:

    Cotton on the roadside, cotton in the ditch 

    We all picked the cotton but we never got rich

    Daddy was a veteran, a southern democrat  

    They oughta get a rich man to vote like that

    …

    Well somebody told us Wall Street fell 

    But we were so poor that we couldn’t tell 

    Cotton was short and the weeds were tall 

    But Mr. Roosevelt’s a gonna save us all

    Alabama’s song is more overtly political than Oliver Anthony’s—it mentions a political party and president—but you’ll find no mention of it being left-wing on Wikipedia’s page of the song. 

    The primary difference, of course, is that Alabama’s song praised government anti-poverty programs, whereas Anthony’s song attacks them. 

    Sadly, it’s quite possible that we’ve reached a point where any kind of criticism of the federal system is considered “right wing” by many. (After all, even everyday activities such as working out to getting up early have been described as such.) 

    But adding inflation to this list of partisan topics is not just unwise, but dangerous. There is, I suppose, one silver lining. 

    Wikipedia’s labeling of inflation as a right-wing talking point is tacit admission that the real cause of inflation is not corporate greed or Taylor Swift. Inflation is a policy of the powers in Washington, D.C. who are printing trillions of dollars.

    If pointing out basic economic realities makes one “right wing,” I’m not sure what that says about the left. 

    A version of this article first appeared in The Epoch Times. 


    Jon Miltimore

    Jonathan Miltimore is the Editor at Large of FEE.org at the Foundation for Economic Education.

    This article was originally published on FEE.org. Read the original article.


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  • Kevin O’Leary on Inflation: You Printed $7 Trillion in 30 Months. What Did you Think Would Happen?

    Posted on by Azrael Comment

    Americans are facing 40-year high inflation and there’s been no shortage of discussion on the topic. It’s the number one issue on the mind of Americans heading into midterms, and every day on TV and in newspapers pundits are debating how long it will last and deciding who is to blame.

    What’s most astonishing amid the flurry of news is just how badly the commentary misses. While there is broad agreement that the US is experiencing dangerously high inflation, partisanship and ideology have polluted basic economics.

    Progressive politicians like Robert Reich and Sen. Elizabeth Warren tweet incessantly that “corporate greed” is to blame, an idea even Democratic economists have summarily dismissed. President Joe Biden, meanwhile, has blamed Vladmir Putin. Republicans, on the other hand, have consistently made the case that Joe Biden is the inflation culprit.

    All of these explanations are entirely or mostly wrong.

    While it’s true that Putin and Biden deserve some blame—particularly in terms of high energy prices—there seems to be an unspoken bipartisan consensus to ignore the elephant in the room: the Federal Reserve’s unprecedented money printing.

    One person not playing the game is Kevin O’Leary, the Canadian entrepreneur and investor who regularly appears on ABC’s Shark Tank. While speaking to journalist Daniela Cambone, O’Leary bluntly explained why Americans are experiencing the highest inflation in generations.

    “The printing presses have gone insane,” O’Leary said. “That’s why we have inflation in the first place.”

    By printing presses, O’Leary is talking about the Federal Reserve. The central bank has been expanding the supply of money for decades, and the clip has picked up in recent years. Nothing, however, has compared to the monetary expansion that occurred during the pandemic, something Fed Chairman Jerome Powell recently admitted in a 60 Minutes interview with Scott Pelley.

    “You flooded the system with money,” the CBS journalist said.

    “Yes, we did,” Powell responded.

    This is what O’Leary is getting at. “Flooding the system with money” is what drove inflation to historic highs, and the result was always an obvious one.

    “For all the talk of inflation, you print $6.72 trillion in thirty months, what the hell did you think was going to happen?” O’Leary says. “Of course there’s going to be inflation.”

    O’Leary’s figures are not wrong. Federal Reserve data show that in August 2019 there was $14.9 trillion total in circulation. By January 2022, there was $21.6 trillion.

    In other words, more than 30 percent of dollars in circulation in January 2022 had been created in the previous 30 months.

    Money creation is the obvious driver of price inflation, a concept that most Americans have at least a vague understanding of because we see it all around us today. Prices are up for almost everything, and up a lot.

    But are higher prices alone evidence of inflation? Prices are always changing, after all. Sometimes they go up and sometimes they fall; oftentimes it has nothing to do with money printing, but is simply a reflection of changes in supply and demand.

    This is what makes inflation challenging to define, and in fact there are two definitions for it.

    For centuries, inflation was defined essentially as an increase in the money supply. Basic economics holds that if you expand the money supply without expanding goods and services, prices will rise. So that was the definition of inflation: an increase in the supply of money.

    Economists in the twentieth century added a second definition, however, calling inflation “a general and sustained increase in prices.” We can see from this definition that what separates inflation from simple price increases is that they are broad and sustained.

    Some economists prefer the older definition of inflation, and Henry Hazlitt, author of Economics in One Lesson, can help us see why.

    “Inflation is an increase in the quantity of money and credit. Its chief consequence is soaring prices,” Hazlitt explained. “Therefore inflation—if we misuse the term to mean the rising prices themselves—is caused solely by printing more money. For this the government’s monetary policies are entirely responsible.”

    Hazlitt argues that rising prices are the consequence of inflation, which is an increase in the money supply. This is why some economists don’t like the new definition of inflation.

    “I prefer the older definition,” Pace University economist Joseph Salerno explained in a lecture on hyperinflation. “I think it’s more useful.”

    It’s not difficult to see why some economists see the traditional definition of inflation as superior. It gets right to the cause of price increases (an expansion of the money supply), while the new definition focuses on a symptom of inflation (“a general and sustained increase in prices”).

    This second definition is far less clear, which might be precisely why some people like it.

    Nobody wants to be blamed for inflation, after all, and under the first definition blame will always return to one spot: the people who control the money supply, and to a lesser extent the politicians, big banks, and bureaucrats who support the Fed and directly benefit from its largesse.

    That’s a lot of pressure for central bankers and politicians. It’s far easier to say Vladmir Putin is primarily responsible for high prices, or the ”greedy corporations,” or Joe Biden’s Build Back Better policies.

    Now, some will tell you that if you’re under 60 this is probably the first time you’ve experienced inflation, but this is not true. Usually inflation is just small enough that people don’t notice it as much.

    For example, government data show a dollar printed in 1990 had already lost 50 percent of its purchasing power by 2021. This is why inflation is often called a “silent killer.”

    Yet history shows inflation often does not remain silent. It persists and grows, and over time it becomes a destroyer of civilizations.

    “I do not think it is an exaggeration to say history is largely a history of inflation, usually inflations engineered by governments for the gain of governments,” the Nobel Prize-winning economist F.A. Hayek once observed.

    This is why Hayek believed the only way to have sound money was to take control of it out of the hands of central bankers and planners.

    “I don’t believe we shall ever have a good money again before we take the thing out of the hands of government,” Hayek said.

    This is precisely why there has been such enthusiasm around decentralized currencies like Bitcoin and Ethereum.

    Whether cryptocurrencies can supplant the dollar remains to be seen, but one thing is clear: the primary cause of inflation is not a boogeyman. It’s not a Russian dictator, corporate greed, or bad legislation. 1

    The primary cause of inflation is the printing presses, exactly like Kevin O’Leary says.

    A version of this article was published at The Epoch Times.


    Jon Miltimore

    Jonathan Miltimore is the Managing Editor of FEE.org. (Follow him on Substack.)

    His writing/reporting has been the subject of articles in TIME magazine, The Wall Street Journal, CNN, Forbes, Fox News, and the Star Tribune.

    Bylines: Newsweek, The Washington Times, MSN.com, The Washington Examiner, The Daily Caller, The Federalist, the Epoch Times. 

    This article was originally published on FEE.org. Read the original article.


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  • How Does the Federal Reserve Create Money?

    Posted on by Azrael Comment

    A few weeks ago, I solicited FEE daily readers for their questions about economics. Pretty quickly I got a question I was pretty certain I’d get eventually. It comes from a man named Warren from Chicago who asks:

    “what are the levers used by the Federal Reserve Bank to increase or decrease the money supply?

    I know it has something to do with interest rates and bank reserves, but how does it actually take place and who receives all the extra money in circulation to cause the inflation?”

    There are several channels that the Federal Reserve can use to create money, but I’m going to focus on the two most relevant ones: open market operations and interest on reserves.

    The first way the Federal Reserve can increase the money supply is by creating more dollars. It’s not as simple as them printing dollar bills then throwing them out of a helicopter, though.

    Instead, when the Federal Reserve wants to create money and put it into the system, it does so through banks. Banks hold several types of assets including treasury bonds. Treasury bonds are IOUs that the government issues in exchange for a loan. You buy a bond with cash today and the government promises to pay you back with interest in the future.

    Banks like to hold treasury bonds because they’re viewed as low risk—it’s unlikely the US government will default on debt (any time soon at least). Treasury bonds also have the advantage that they’re relatively easy to sell to someone else to get cash. Economists call this ease of converting an asset into money liquidity.

    The Federal Reserve offers to buy these bonds from banks. When the Federal Reserve buys bonds, they have an advantage you and I don’t. They are allowed to print new money to buy the bonds. It’s more likely that the money will be digitally created than literally printed, but the form of the money doesn’t make a difference.

    The Federal Reserve acquires government bonds and banks acquire newly created money. The process doesn’t stop there, however. Banks don’t generally like to sit on large piles of money because money doesn’t earn interest (unlike the bonds they just sold to the central bank). So what do banks do with their money?

    One thing they can do is make more loans to businesses. The increased supply of funds available to lend out means that there will be more loans available for the same number of businesses. Everything else held constant, this means the price of borrowing (the interest rate) will fall.

    Banks can also turn around and buy more treasury bonds if they want to replace some of the bonds sold. This higher bond demand means the government will be able to take on more debt to finance its spending.

    Economists call this process of the Federal Reserve using newly created money to buy bonds from private banks an open market purchase.

    So how much has the Federal Reserve utilized this tool as of late? Look at this graph:

    Figure 1: Treasury Securities Balances Held Outright

    Since January 2020, The Federal Reserve has increased its treasury securities from $2.3 trillion to around $5.6 trillion today, an increase of around $3.3 trillion.

    A more recent move by the Federal Reserve has been to purchase other types of assets as well. Before 2008, the Federal Reserve owned $0 in Mortgage-Backed Securities (MBSs). Today is a different story.

    I won’t go into detail about MBSs (you can read more about them here) except to say they’re another type of financial asset banks hold which are a good bit riskier than treasury bonds. Here is a graph showing how Federal Reserve MBS holdings exploded in 2008 (in an attempt to alleviate the housing crisis) and again in 2020 (in an attempt to curb the negative effects of COVID policies).

    Figure 2: Mortgage Backed Securities Held Outright

    As you can see, the Federal Reserve acquired around $1.3 trillion worth of mortgage backed securities from January 2020 to today.

    As economist Jim Gwartney pointed out for AIER,

    “[the] $4.2 trillion increase in federal spending over the two [COVID] years was financed entirely by borrowing from the Fed. Fed holdings of financial assets, mostly Treasury bonds and mortgage-backed securities of federal housing authorities, increased from $4.2 trillion in February 2020 to $8.8 trillion in December 2021.”

    So now we understand how the Federal Reserve creates new money, and who it goes to. Banks are the first recipient, and borrowers or those who sell financial assets banks demand (including the government itself) are the second recipients. And as Warren alluded in his question, this policy indirectly influences the interest rate.

    There’s one other important tool for how the Federal Reserve can influence the creation of money. It’s a relatively new policy lever called interest on reserve balances (IORB).

    To understand how the Federal Reserve impacts the money supply through IORB, you need to have a basic understanding of our banking system.

    Let’s say Warren deposits $1,000 in his bank, FEEbank. What happens to the money then? In the United States, it’s unlikely that the money will sit in a vault. Instead, FEEbank will likely try to make a return on that money by lending some of it out to someone else.

    So let’s say Jim comes and asks for a loan of $800 from FEEbank. FEEbank lends out $800 of Warren’s $1000. So how much money does Warren have? Well, when the bank lends out your money, your balance doesn’t go down. Warren can still go withdraw his money so long as the bank can give him deposits they’ve kept from other customers.

    If everyone came to get their money at once, the bank would run out of money, but so long as that doesn’t happen, FEEbank doesn’t have a problem.

    So now Warren has $1,000 and Jim has $800. There is now $1,800 in the economy compared to $1,000 before. FEEbank created more money!

    The process doesn’t even have to end there. Jim can deposit the $800 in another bank, which can lend out a portion to someone else.

    This system of banking is called fractional reserve banking because banks only keep a fraction of your deposits as reserves, and they loan out the rest.

    So private banks in this system can create money by lending deposits, but what does this have to do with the Federal Reserve?

    In 2008, the Federal Reserve adopted a policy of paying banks interest for the money they kept in reserves. So, instead of FEEbank loaning out Warren’s money, the Federal Reserve could offer to pay FEEbank to keep the money in the vault.

    The higher the interest the Federal Reserve offers to pay FEEBank, the less likely it is to lend out the money. Why make a risky loan at a 3.5% interest rate if the Federal Reserve will pay you 3.5% for keeping it in the vault? The Federal Reserve is essentially paying banks to not make loans.

    Notice, too, this also allows the Federal Reserve to more directly control the interest rate. If the Federal Reserve wants loans to have a 4% interest rate, all the agency has to do is promise to pay 3.9% IORB to not make the loan. In that case, a private borrower would have to offer at least 4% to beat the Federal Reserve.

    So if the Federal Reserve wants banks to lend more of their deposits thereby creating more money, all they need to do is lower the IORB. And that’s exactly what they did during COVID.

    In January 2020, the interest rate on reserves was 1.55%. By mid-March 2020, the Federal Reserve had dropped the rate to 0.1%.

    This policy made it relatively more lucrative for banks to increase lending and, everything else held constant, when the benefits of an action goes up, people will do more of that action.

    The result of these policies has been a large increase in the supply of money. Economists measure what counts as money a few different ways, but one of the most commonly used and accepted measures is called M2.

    From January 2020 to January 2022, the M2 money supply increased from $15.4 trillion to $21.6 trillion.

    That’s a 40% increase in the money supply— unprecedented in recent US history.

    Figure 3: M2 Money Supply

    As I’ve explained since May of last year, this increase in money supply inevitably led to higher prices across the board (aka inflation). FEE’s Dan Sanchez has explained this in depth as well.

    Unfortunately, the Federal Reserve seems to have printed itself into a corner.

    Utilizing open market purchases and lowering IORB may have propped up the economy by stimulating lending and investment in 2020, but the chickens are coming to roost. At this point, if the Federal Reserve wants to use its levers to bring inflation down, it’s going to do so by hurting investment opportunities.

    As of this month, the IORB has been raised to 3.15%. This means less funds will be available to borrowers. Whether we’re in a technical recession or not right now, it seems unlikely to me the Federal Reserve will be able to bring inflation down without allowing an economic correction to take place.

    There’s no such thing as a free lunch. Printing dollars does not mean there are more sandwiches to go around. And although the Federal Reserve can affect the economy with their levers, they cannot print prosperity.


    Peter Jacobsen

    Peter Jacobsen teaches economics and holds the position of Gwartney Professor of Economics. He received his graduate education at George Mason University.

    This article was originally published on FEE.org. Read the original article.


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