How will they stop inflation?

Inflation is a monetary phenomenon.  It’s the expansion or increase of the money supply.

We are clearly in an inflationary cycle, the money supply having increased worldwide to record levels.

This cycle is vicious, fueling itself.   Commodity prices increase as more dollars are chasing finite resources.  Wages must be increased in order to restore purchasing power to workers, “catching them up” with cost of living increases.   This increase in wages then causes more money to chase finished goods, driving the prices up.  And so on.  Endlessly until it is stopped.

The way to stop this is for the money supply to decrease or for production to increase enough to “soak” up all the liquidity, a dumb f*****g word bugmen use to describe cash.

Production ain’t going up.  In fact, by almost every measure productivity has fallen in recent months if not years.

The money supply must shrink.

Traditionally, the federal reserve bank would increase the discount rate, the interest rate banks charge each other.  By and by this causes the money supply to shrink.

It also drives up the cost of money.  Interest rates on the “open market” increase.

The US government cannot afford an increasing cost of money.  An enormous portion of the federal budget goes to paying interest on gubermint debt.

Increasing interest rates could ultimately collapse duh gubermint.   Gubermint folks don’t want that.

What are other ways the money supply might shrink?

-Precipitous decline in asset values.

I can imagine wargaming hyper inflationary scenarios and determining that a widespread collapse in asset values is the best way to stop inflation from spiraling out of control.   In my opinion the assets most in danger of this would be stocks and real estate.

Central banks have used money printing (buying bond funds and such) to buoy up the stonk market in the past.  They may not have this as an option if falling asset prices are destroying cash and restoring value to their fiat.

What follows is not a prediction.  It is something to consider while making your plans.

Do not be surprised to see a precipitous decline in asset prices with no effort from central banks to shore those prices up.

Leave a Comment

Your email address will not be published.

Scroll to Top