Inflation’s here for a while. We're getting the whirlwind of what was done last year and the year before. Even before COVID, the Fed was printing too much money. They went on a binge last year, perhaps for understandable reasons, but they overdid it.

In fact the Federal Reserve pumped up the money supply for the last couple of years to offset the massive spending done by Mr. Biden and the Democrats running Congress (although the GOP wasn't far behind when they ran the show there.) 

The Fed increased the M2 money supply by 6.1 TRILLION dollars between March of 2020 and the end of 2021 alone. In 22 months after the beginning of the march increase the amount of money in  circulation rose by 42%. This is absolutely guaranteed to cause major inflationary pressures.

Now the Fed is doing "qualitative tightening" and cutting the supply, but they face the danger of deflation triggering a recession or worse. So they are tightening slowly, hoping to take the price pressures down. Of course this guaranteed slow growth at best.

So many people try to blame so many other things for inflation - oil prices (as if they are not part of the inflationary pressures themselves), the war in Ukraine, supply chain disruptions, etc. But ultimately it's because of this gargantuan increase in the supply of money. It's not complicated. The other things just add to it.

And of course Mr. Biden has been waging a war on oil and gas - the lifeblood of the economy - so he's just made matters that much worse. Certainly high fuel prices lead to higher delivery costs which jack up the price of commodities.

But inflation was and is and always will be a monetary problem. The Fed created this, largely to help the U.S. pay for th massive spending.

If they would tell Congress they aren't going to bail them out anymore there would be real concerns about spending. But they won't do that because they want to maintain the status quo (and keep like-minded Keynsians on the Fed board). Congress will not find any fiscal discipline as long as the Fed will bail them out by printing more money.

This is much like the leadup to the Great Depression. From 1920=29 the Fed increased the money supply by 42%. That was the M2 numbers. If you look at things like savings and loan money or insurance along with M2 you get a much higher number - 62%. It was this inflation of the currency that was responsible in no small part for the roaring '20's prosperity. (That coupled with sound fiscal management by Warren Harding and Calvin Coolidge.) But then the Fed decided to shift course, and reduced the money ssupply by a whopping 30% between 1930 and '33. After a decade of expansion they contracted - and at a time when the economy was hurting from a stock market crash. (Of course the Republican-controlled Congress didn't help by increasing taxes.)

And this was during the Hoover Administration. Hoover was an activist Keynsian economist. He believed he could fine-tune the economy via government power. In fact, Franklin Roosevelt ran as a fiscal conservative against Hoover; he said Hoover went too far in government intervention. (Calvin Coolidge called Hoover "the Wonder Boy" because Hoover thaought he could fix everything.) 

It was Hoover who implemented vast government spending programs, massive rerlief plans, and big public works projects - the core of the New Deal. And this at a time when the Fed was pushing fiscal austerity.

It was the perfect storm for a Depression.

BTW the Federal Reserve had kept inflation in check during the '20's by not printing as much money as the gold coming into the Treasury. Rising prices were minimal during the early years of the Roaring Twenties, but like all such things the party must end at some point.

Inflation was 1.4% until 1926, then slowed to 1.1% until '29. But the expansion of the money supply had to come from somewhere, and it came ultimately from an inflation of stocks, which proliferated like mushrooms in a forest after the rains. The reasonably low inflation and economic prosperity were slowly hollowing out the economy.

You can see the parallels with the current era.  The scary thing is we have double, triple, quadrupled down on the mistakes of the past. The Great Depression is due for a repeat.

And we are making the same mistakes that caused the Great Recession too.

The only thing that has kept the U.S. economy afloat has been the fact the U.S. dollar has been the world's reserve currency, and that oil must be purchased with dollars. That is now changing. The Saudis started accepting other currencies, and the Russians are now refusing anything but rubles. As the dominance of the dollar comes to an end the whole rotten structure will collapse. The woeful lack of value of our money is going to be exposed, and when it is the fall will  be spectacular.

I am mindful of the Book of Revelation "Babylon is fallen, is  fallen!...the merchants of the world will weep and mourn for her, for there is no one left to buy their goods."

What does that sound like? That's much like a monetary collapse.

That is where we are heading.

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