In recent weeks, there have been creeping stories about the possibility of inflation hitting the American economy. Most of the fears were poo-pooed by the big spending Democrats in Washington and dismissed by most of the mainstream media. “No need to worry,” they say. If you are worried that we might be entering an inflationary period, fuggedaboudit. We are not about to ENTER an inflationary period because WE ARE ALREADY IN IT.
That’s right. Consumer prices are rising. The Consumer Price Index increased by 0.8 percent in April. That may not sound like much, but that is only for one month. Compound that over the rest of the year and that can easily result in price hikes from 10 percent to 20 percent over the course of the next year. That will have a huge impact on consumers – especially those in the low-income categories.
We must keep in mind that inflation is much like a tax in that it takes away the amount of goods and services you can consume. As prices rise, you have less buying power with the money you earn. Inflation is like having your bank account robbed a little bit every day.
Inflation is a tax on the poor. Wealthy folks with lots of money in reserve actually benefit from inflation. Their money will earn more interest. But if you do not have large financial reserves, you will have to spend – and spend quickly – to avoid tomorrow’s price increase.
In case you have not noticed, the cost of new cars has risen on an average of 10 percent. That is an astounding surge toward inflation. That has had a lot of car buyers shifting to used vehicles. With all the dollars now chasing used cars, the cost of those has risen 21 percent.
Over the course of the past 12 months, prices have risen by 4.2 percent, according to the Department of Labor. That is the biggest increase in 13 years. And the monthly increases, themselves, are on track to keep increasing.
Since the onset of the Covid-19 Pandemic, there has been concern that the HUGE infusion of money into the American economy would set off inflationary pressures – but that was considered the lesser danger than the devastating impact of the shutdown on the economy and the armies of laid-off workers.
But now that the economy is righting itself as the dangers of the virus are ebbing, the grandiose spending programs proposed by President Biden and the Democrats in Congress are setting off legitimate fears of inflation – a nasty inflation.
Even Keynesian economists like Larry Sommers and MSNBC’s resident economic guru, Steve Rattner, are expressing concern over the amount of spending. If THEY are even a little worried, we should be VERY worried.
As the economy heats up, the Federal Reserve will have to end their free (no interest) money policy. That means it will cost more to buy things like houses and cars – and credit card purchases. It also means a huge impact on debt service – the amount of interest we have to pay NOW to carry the massive National Debt. It is currently around $380 billion a year on a debt of more than $28 trillion – up $4.2 trillion dollars in the past year. That is the greatest one-year increase ever.
The fear that inflation may be coming sooner than anticipated has already impacted on the stock market. Right now, there is a lot of investment in stocks because of the abysmally low interest return on bonds. As bonds become more competitive for investment, the market will take a hit.
The excessive spending proposed by President Biden will certainly increase inflationary pressure on the economy. It is no longer a question as to whether we will see inflation in our future, but only how soon and how much.
If America is to avoid a devastating inflation akin to what we say in the 1970s, Congress has to drastically reduce spending – and that means taking the proverbial “blue pencil” to basket of expenditures in the Biden budget proposals.
Inflation is one of the prices we will all pay for all those government hand-outs people thought were freebies.
So, there ‘tis.