By Mike Holly
Americans Against Monopolies (AAM)
Published March 2, 2023 at 2:25 PM
TABLE OF CONTENTS
ABSTRACT (Added April 25, 2023)
III MONETARY AND FISCAL MANIPULATIONS
IV STOCK MARKET CRASHES
V COMING CRASH AND COLLAPSE
ADDENDUM Defense of Supply-push Inflation (Added March 10, 2023, Updated April 23, 2023)
This AAM study finds that conditions have aligned for a sixth major crash of the U.S. stock markets and economy since the founding of the Federal Reserve (Fed) in 1913. The major crashes have always resulted when, and only when, the Fed raises interest rates by three percentage points or more, while the government decreases deficit spending, with the goal of stopping consumer and/or asset price inflation. AAM finds that economists have failed to recognize “supply-push” inflation caused by government policies favoring monopolies (i.e., legal definition). Meanwhile, "cost-push" inflation results from supply shocks and "demand-pull” inflation is caused by the need to grow a monopolized economy through the lowering of interest rates and/or the increasing of deficit spending, often including spending on the military. Now, if the Fed continues to fight inflation, there will soon be a relatively sudden crash like in 1915, 1929, 2000 and 2007. If the Fed stops fighting inflation, the crash will occur as a loss of value over a longer period, like 1965-1982.
AAM finds that economists have failed to recognize free market solutions that could avoid a crash. In 2022, the U.S. Congressional Research Service reported: “Some commentators have argued for addressing inflation by tackling its cause. In other words, supply-driven inflation should be controlled via supply-side solutions, and demand-driven inflation should be controlled via monetary or fiscal tightening.” However, the proposed government incentives for suppliers would further reward monopolization while ballooning the national debt. AAM recommends increasing supply through the elimination of government policies favoring monopolies, for example, charters favoring the Fed’s big banks, zoning limiting the supply of housing, the restriction of doctors, hospitals and insurance, electricity utility monopolies, and excessive IP protections for Big Tech.
Amateur investors should prepare for another crash of U.S. stock markets that has already started, if history is any indication. The stock market declines of 2022 will likely soon extend losses into a severe and multi-year crash and economic recession. As Marty Zweig, a successful Wall Street investment adviser known for data studies, warned “don't fight the Fed.”
Economists won’t admit that the stock markets are rigged against amateur investors and in favor of insiders and professional investors, who know and understand what the government is doing. Amateur investors don’t know the best stocks to buy and when to buy them. They stay in the stock market too long, like they are now. As crashes occur, some panic and sell stocks low at a loss, while others ride the market waiting for the government to bail them out with lower interest rates and increased deficit spending (whether they realize it or not). Insiders can get much richer by buying stocks before government favoritism increases their value (e.g., Paul Pelosi). They sell stocks high before the government crashes markets, like they have recently, and may even bet on lower stock prices by “shorting” stocks before crashes. They can buy stocks low again later if they are assured that the government will bail out the market.
The Fed and its economists have kept amateur investors largely in the dark. In 2021, the Fed held interest rates low while claiming price inflation was transitory and resulting from the Covid pandemic starting in 2020. After the Russian invasion of Ukraine in 2022, they reversed course and began raising interest rates rapidly. They have been warning about the impending pain on the stock market and economy. They wouldn’t risk pain if they still thought the inflation was transitory. However, the failure of the Fed to provide clear and comprehensive explanations has limited their credibility and made it appear that they just want to be able to claim they warned investors. The Fed should also be explaining that higher inflation can initially lead to an economy that appears healthy by encouraging more consumer spending, and the hiring of more workers by business, like today. The Fed will keep raising interest rates because inflation expectations are setting off a wage-price spiral.
Most economists and financial analysts, especially those whose business depends on the stock markets, don’t help amateur investors much. Typically, they don’t discuss government favoritism for certain stocks. They have been telling investors that the markets and economy won’t crash. Their illusions, delusions or wishful thinking, like claims of so-called “transitory inflation,” “buy-the-dip,” “Fed pivot” and “soft landing,” have fueled the recent partial rebound in stock prices or so-called “bear market rally” led by “amateur investors.” They claim that, even if there is a fall or crash, stocks will bounce back soon thereafter. They are not warning investors that it may be more difficult to bail the markets out through the printing of money this time, and it is possible they won’t be able to recover their stock losses anytime soon after the crash.
Other economists and insiders are predicting a crash. But they are not explaining that government policies favoring special interests and especially monopolies are causing inflationary consumer price pressures, perhaps even greater than those of the 1970s. They also don’t explain how and why monopolization has required that the government stimulate economic growth through low interest rates and deficit spending that have been inflating stock and home asset prices while piling up debt for decades. The government response to the Covid pandemic and the Russian invasion of Ukraine just briefly accelerated existing price pressures, especially for homes, cars, oil, natural gas, and food. The doomsayers often don’t explain why the stock markets will crash under conditions like today.
Government-favored monopolies are the primary cause of major crashes, and eventually a collapse, of the stock markets and economy. Famous investor Warren Buffet admits he prefers investing in “near-monopolies.” The dictionary version of monopoly rarely happens because it requires “exclusive possession or control of the supply of or trade in a commodity or service.” The legal definition of a monopoly is much more common because it requires “significant and durable market power, that is, the long-term ability to raise price or exclude competitors.” The legal term is much more useful for evaluating monopolies, stock values, economic ramifications, and policies.
Economists have failed to acknowledge the pervasiveness of monopolies. Companies seek monopolies to stifle competition and limit supply, so they can relax and reduce the quality of goods and services, while increasing prices, profits, and stock values. Monopolies control virtually all U.S. industries including banking, housing, construction, medical care, hospitals, pharmaceuticals, agriculture and food, energy, oil and natural gas, public utilities, transportation, automobiles, tech, cable TV, manufacturing, education, military equipment, and some labor forces. Banking and technology are the most profitable industries and benefit from the manipulation of all industries. In 2022, the Federal Reserve Bank of Boston found the U.S. economy is conservatively at least 50% more concentrated today than in 2005.
Economists are not even trying to determine the causal relationship between preferential government policies and monopolies. Politicians have always received various campaign and personal contributions in exchange for awarding business interests with preferential policies. Since the 1970s, preferential policies appear to have grown with the movement toward corporatism (i.e., control of the state by large interest groups). The political right tends to favor private-sector special interests, while the left prefers those in the public-sector. They favor special interests with a growing list of policies such as: nationalization, favoritism, charters, grants, subsidies, loans, tax credits, mandates, bailouts, zoning, eminent domain, contracts, permitting, exemptions, accreditation, licensing, certificate-of-need, patents, copyright, price supports, tariffs, utilities, rigged trade, immunity, etc., etc. Although these policies have clearly limited competition in virtually all industries, most economists blame market failures for monopolies, especially during ineffective antitrust lawsuits.
Economists have failed to recognize the basic economics of “supply-push” price inflation and high prices caused by the continuous limiting of supply by government-favored monopolies, especially while demand has been increasing in the six major consumer necessities. Since 1965, prices have inflated most rapidly for education offered by public and non-profit schools, and health care offered by restricted supplies of hospitals, practitioners, insurance and Big Pharma. Since 1970, home prices have inflated due to monopolies of landlords, construction, building materials and public financing. Since 1973, energy prices have inflated due to OPEC, Big Oil & Gas, and electricity and natural gas public utility monopolies using favored oil and gas, and wind and solar. From 1973 to 1997, automobile prices inflated to today's high levels due to increasing manufacturing costs from the Big 3 automakers while under regulations requiring high mileage and low emissions. In 2006, agricultural prices inflated to today's high levels after biofuel mandates favored production by the “King Corn” and soybean duopoly that has already been providing grains for processed and red meat foods.
Economists have also failed to recognize that inflationary pressures are growing as governments continue to favor monopolies using costly and depleting energy and material sources requiring inefficient and environmentally-destructive recovery. Housing requires forests for wood, sand for cement and glass, oil and gas for plastics, and metals such as steel, copper and aluminum. Costly recovery of oil and natural gas requires large amounts of sand, while toxic chemicals are injected into the ground near water resources. The transition to wind, solar, batteries and electric cars is even more costly and requires even more copper, toxic metals, sand and microchips. In addition, the U.S. can no longer rely on China and its neighbors for low-cost mining and manufacturing. Some economists like Mohamed A. El-Erian have at least expressed some concern that the clean-energy transition and redirected global supply chains may increase inflation.
Economists have failed to recognize that the supply restrictions and inflation caused by government policies favoring monopolies, especially in the six major necessities, have resulted in unjust wealth disparity and debt that typically leads to economic catastrophe. Although education and health care prices and costs are a burden for consumers, most spending is paid by the government. Consumers are saddled with most of the costs for housing, energy, food and vehicles, including the debt payments for homes and cars, although growing subsidies are paid by the government. Wealth disparity results from monopolies restricting income opportunities and the higher prices paid by consumers. Deficit spending results from government spending in excess of tax collection, and is just tacked onto government budgets as debt.
Most economists have failed to recognize that wealth disparity leads to stock market crashes and recessions/depressions in the short-term, while government debt threatens financial collapse in the perhaps not so long-term. High and inflating prices, along with taxes used to pay for government spending, squeeze consumers during booms until consumer demand, stock markets and the economy go bust. Mounting debt and increasing interest rates are squeezing productive spending, productivity, innovation and growth, and leading to economic decline and eventual collapse.
Meanwhile, monopolists and other insiders can prosper from the booms and busts of the stock markets and economy caused by the government. During booms, monopolies can limit supply, inflate prices and enjoy high profits until rising interest rates and falling consumer demand causes the stock markets and economy to go bust. After busts, there is surplus supply capacity and low wages, costs, prices and interest rates for monopolies to enjoy another boom. Since 1913, insider investors have forced the government to use the Fed to directly control interest rates and other monetary policy for better control of the timing of the booms and busts. The Fed may have alleviated, but certainly has not eliminated, financial crises by responding to inflation with higher interest rates to limit demand and economic growth, and then lowering interest rates to spur growth for recovery. After the eventual financial collapse, insiders will enjoy even more wealth disparity.
Economists have failed to recognize that government policies have precipitated the major stock market crashes and recessions. Since 1913, all five major stock market crashes were preceded by the Fed raising interest rates by three percentage points or more, along with reduced deficit spending by the government. These major crashes occurred in 1915, 1929, 1965, 2000 and 2007. Each time, the purpose of raising interest rates and reducing deficit spending was to reduce price and/or asset inflation. All were followed by recessions that were usually severe.
Moreover, economists have failed to recognize that a major crash has resulted every time the Fed has reached its goal of reducing price and/or asset inflation by raising interest rates, usually with reduced deficit spending. These five periods were 1915-22, 1925-30, 1950-1981, 1994-2000 and 2004-7. There has never been a “soft landing” and a “Fed pivot” has always arrived after the crash. Therefore, the government’s plan, starting in 2022, to stop inflation by raising interest rates and reducing deficit spending, is likely to end in a stock market crash and recession, if not worse.
Most economists don’t even understand the significance of a federal debt that is already too large, growing exponentially, and accelerating with rising interest rates needed to reduce inflation. The federal debt is by far the highest in the nation’s history in nominal terms and will soon even exceed the highest debt levels as a percentage of GDP. The debt is leading to eventual financial collapse.
Finally, economists are not offering sustainable solutions. After the coming crash, the government will likely once again lower interest rates and increase deficit spending to gradually pump stock prices back up and even higher than before. This will depend on support from politicians and investors, even though the stock market will eventually crash again, as government debt piles up. The government could allow inflation to continue, like they did during the 1970s, but even that caused a stock market crash in real values and had to end in the severe recession of the early 1980s and subsequent deficit spending. The political far right would repeat the mistake that prolonged the Great Depression by restricting debt after the crash, while the far left would explode the debt. The nation appears headed off the proverbial cliff and a civil war between fascists and socialists.
The nation should be at least considering moving toward free market capitalism by eliminating government policies favoring monopolies, but economists are feckless, politicians serve the special interests and many voters are employed by monopolies.
The U.S. economy and stock markets have always been far weaker and more vulnerable than the American public and investors have been led to believe by politicians and economists. The nation has always had a corrupt, rigged, monopolized and boom-and-bust economy and stock market. Government favoritism for special interests has resulted in “legal” monopolies that stifle competition and limit supply, and cause extreme income and wealth disparity, higher prices and lower quality for consumers, and even poverty. Monopolies gouge household, business and other consumers until inflation and interest rates rise, demand falls, and the economy and stock markets crash.
America’s only redeeming success was largely achieved by its geographic location far from the destruction of the other major manufacturing centers in Europe, Russia and Japan during World War II. The U.S. gained exceptional economic strength from exporting manufactured goods, its economic system and hegemony throughout a decimated world during the post-war boom or so-called Golden Age (1948-1965). Since then, America has been living off its past and also future using debt.
Americans, especially those in politics, business, economics and the media, falsely claim that the U.S. economy has been largely free market capitalism (i.e., supply and demand regulates the economy). But the U.S. economy has always been authoritarian (i.e., government control of the economy). It started with mercantilism (rulers control protectionist trade) that caused extreme wealth disparity and poverty. During the Progressive and New Deal eras, it moved toward socialism (i.e., public-sector control of the economy) with low growth, widespread poverty and two world wars. Now, the U.S. has corporatism with extreme wealth disparity.
The political right tends to favor special interests in the private-sector, while the left prefers those in the public-sector. America’s current economic system is an unstable political compromise between the special interests in the private and public sectors. Now, the political right seeks fascism (i.e., dictatorial control of the private-sector economy), while the left wants a return to socialism. Although fascism and socialism could solve some of the nation’s economic problems, they would create far more problems. Moreover, it is unlikely that the two extremes would be able to compromise, thus leading to civil war.
Americans don’t seem to recognize the plethora of government policies favoring monopolies. The right tends to ignore monopolies, while the left shifts the blame for them onto the market failures of capitalism and “greedy” companies. Both sides appear to support monopolies, but are certainly unwilling to challenge the economic and political power of the special interests. Monopolies provide more power and profits than competition for business, politicians and the media. Since economics is the study of scarcity, economists are creating and maintaining the need for their own jobs by supporting government regulations and other policies that limit supply and create monopolies.
The following “legal” monopolies are now favored by government policies:
BANKING - Banks (e.g., J.P. Morgan, Wells Fargo) have been the nation’s most profitable industry because competition is restricted by federal and state charters that limit the number and types of financial institutions, while the Fed has provided its banks with low-interest loans.
HOUSING (Supply) – Landlords (e.g., BlackRock) and homeowners increase rents and used home prices by supporting local government regulations, such as zoning and permitting, that limit the supply of new homes and apartments. Favored landowners also receive preferential infrastructure improvements such as roads, railways, water supply, sewers, electrical grids and telecommunications. Construction firms (e.g., D.R. Horton, Lennar) receive preferential government treatment through zoning, eminent domain, contracts, planning permission and permitting, and subsidies from local government.
HOUSING (Finance) The Federal Housing Administration (FHA), Fannie and Freddie duopoly and the Fed’s big banks, receive government monopolies and support for providing easy and lower-cost home financing.
HOUSING (Materials) - Government policies, such as grandfather exemptions from new environmental regulations, favor monopolies providing building materials made from limited resources, such as lumber made from old-growth trees, plastic made from oil and gas, metals made from lead, tin, zinc, copper, aluminum, iron and steel, and glass and cement made from sand. International wood products corporations (e.g., Weyerhaeuser, Boise Cascade) preferentially buy the rights to take trees on mismanaged government forest lands at subsidized prices.
HEALTH CARE (Providers) - Doctors, nurses, hospitals and insurance companies (e.g., UnitedHealth, Cigna), restrict competition by limiting supply through state medical school accreditation, occupational licensing, certificate-of-need, and insurance regulation.
HEALTH CARE (Medicines) - Pharmaceutical companies (e.g., Pfizer) lack competition because supply is limited through the preferential granting of government research grants, approval by the Food and Drug Administration, and patents.
FOOD - Food and other agricultural providers (e.g., Monsanto) that use traditional crops, especially corn, soybeans and wheat, are favored with government policies like production quotas, subsidies, price supports, import tariffs, levies and quotas, and export subsidies.
ENERGY (Big Oil & Gas) – The U.S. government allows the OPEC + Russia oil cartel, created by foreign governments, to trade freely in global oil markets with immunity from antitrust laws. The U.S. political right favors oil for vehicle fuel, along with the natural gas by-product for heating and electricity generation. Domestic oil and natural gas companies (e.g., Exxon, Chevron) are favored with preferential environmental exemptions, low-cost land leases, laws allowing the pumping of oil from under others’ land, tax subsidies and the use of eminent domain for oil and gas pipelines (that shifts land costs onto landowners). Oil is also favored by biofuel mandates that favor expensive ethanol fuel made from corn and cellulose, which also receives subsidies. Natural gas is also favored by costly environmental regulations restricting the use of coal, and safety regulations restricting nuclear, although nuclear also receives cost-saving protections from liability for radiation disasters through the Price Anderson Act.
ENERGY (Utilities) - Electricity companies (e.g., Xcel) are granted vertically-integrated public utility monopolies for generation, transmission and distribution, or at least distribution monopolies. Natural gas companies are granted distribution monopolies. Utilities are allowed to use eminent domain to force landowners to accept unnecessary high-voltage transmission lines and natural gas pipelines. The monopolies are allowed to determine who can sell electricity and natural gas. The political left favors a national electricity grid powered by utility-scale wind, solar and batteries for electricity, transportation and heating with all sorts of mandates and subsidies. Tax credit subsidies are targeted for wealthy investors, especially the banks. They prohibit the sale of decentralized renewable energy delivered on microgrids.
TRANSPORTATION (Automobiles) - The Big Three Automakers (e.g., GM, Ford) have been favored by the Securities and Exchange Commission, import tariffs and quotas, and bailouts. Electric vehicle companies (e.g., Tesla) receive mandates and massive subsidies.
TRANSPORTATION (Other) - The Big Four Airlines (e.g., United Airlines) are favored by airline terminals. The Big Four Railroads (e.g. Burlington Northern) were favored with land grants and are now under tight federal and state regulation. Mega trucking carriers (e.g., J.B. Hunt) dominate because independent truck drivers are burdened by the industry regulations. Taxis are limited by restrictive licensing, while tech companies (e.g., Uber) are not.
MANUFACTURING (Domestic) - Manufacturing firms within the U.S. (e.g., GE) are favored with monopoly patent protections from competition over excessively long lifetimes, and often also subsidies.
MANUFACTURING (Foreign) - State monopolies and American partnerships in China (e.g., Foxconn) dominates global manufacturing and trade with help from government export subsidies, low-cost and even slave labor, and lax environmental laws.
TECHNOLOGY (Tech) - Big Tech (e.g., Facebook, Amazon, Google, Apple, Microsoft) is favored with intellectual property (IP) monopoly protections from competition, especially copyright and patents over extremely long lifetimes, even though the government often funds much of the technological development.
TECHNOLOGY (Utilities) - Companies providing telephone (e.g., AT&T), cable (e.g., Time Warner), and internet (e.g., Comcast) are granted public utility monopolies that provide high-cost and low-quality services. Moreover, TV and radio channels are awarded preferential use of the airwaves.
RETAIL - Superstores (e.g., Walmart, Sears) are favored by local zoning, eminent domain laws, tax breaks and other subsidies, internet sales companies are favored by tax laws, and sports leagues (e.g., NFL) are favored with antitrust exemptions.
EDUCATION - Education offered by local non-profit public and private schools for K-12 and higher education are favored over for-profit private schools through taxpayer financing, mainly appropriations and tax breaks, respectively. Public-school teachers have limited supply due to occupational licensing laws.
DEFENSE - The “military-industrial complex” (e.g., Lockheed Martin) receives preferential government purchasing and politically-created demand for defense and even wars.
LABOR - Unions (e.g., Teamsters) are protected by laws that prevent other workers from competing against them to earn a living.
The Fed has provided its economic definition of consumer price inflation as price increases for goods and services over time. The current U.S. corporatist economic system is conducted mostly within the private-sector. Consumer spending is about 70 percent of the economy. Goods and services are provided by mostly private-sector monopolies, but also public sector monopolies. The Consumer Price Index measures the overall change in consumer prices based on a representative basket of goods and services over time. It is dominated by housing (36%), food (14%), transportation especially automobiles (14%), energy (9%), health care (8%), and education (3%). Consumer spending is affected by higher prices and can result in crashes of the economy in the short-term.
The federal government spends mostly on health care financing (33%), the military (20%), food (4%), public education (3%), public transportation (2%) and public housing (2%). States spend about 30 percent of their budgets on public education. These goods and services are provided by public-sector monopolies, while purchasing from private-sector monopolies. Government spending is also affected by higher prices. Public spending tends to be more controlled by the government, but still results in even higher costs and lower quality. Government hides high short-term costs in the long-term debt. Government spending is paid by taxes and debt, so it causes less short-term and more long-term problems.
Economists have traditionally recognized two basic causes of consumer price inflation. First, cost-push inflation occurs when production costs increase, such as higher prices for materials or wages. Second, “demand-pull” inflation results when consumers are willing to pay higher prices for a good or service (or assets like homes and stocks), due to such factors as government printing too much money, low interest rates, government spending, consumer confidence, export demand, and inflation expectations. Last year, the Boston Fed reported new findings that monopolies contribute to inflation by passing on more of the costs of supply shortages, energy price shocks and labor market tightness. However, monopolies are still not recognized as a cause of inflation.
Because economists ignore government policies favoring monopolies, they also ignore supply-push price inflation caused by governments and monopolies restricting supply. Economist Henry Hazlitt explained that “Prices are fixed through the relationship of supply and demand ….. When people want more of an article, they offer more for it. The price goes up. This increases the profits of those who make the article. Because it is now more profitable to make that article than others, the people already in the business expand their production of it, and more people are attracted to the business. This increased supply then reduces the price.” Supply-push consumer price inflation results when monopolies won’t expand production, and the government bars or discourages others from expanding into the markets by favoring monopolies. It is the most significant and persistent cause of price inflation.
The following graph demonstrates the rising prices since 1965 for the six major necessities of the consumer price index and also apparel. Prices increased 2.5 times for apparel and automobiles, 8 times for transportation, 9 times for food, 10 times for housing rents (called shelter), 20 times for home prices, 12 times for energy, 22 times for health care, and 30 times for education. Overall, the consumer price index has increased to 9.5 times as much.
In comparison, average hourly earnings have increased 11 times. Prices for education, health care and homes are much less affordable. Wages have barely kept up with energy, shelter, food and transportation. Only manufactured goods, including new cars and apparel are less expensive. This is mostly due to export subsidies, low-cost labor and lax environmental regulations provided by China. The failure of domestic industries to control inflation to the different degrees indicates higher prices are caused by factors specific to the industries, specifically government favoritism and the concentration of suppliers.
Inflation for the six major necessities since 1965 have varied greatly by time period. Prices for education, and also largely for health care, have skyrocketed unabated since 1965. Home prices have increased twice as fast as housing rent, and much more rapidly during 2000-7 and 2012-22. Energy prices increased from 1973-84, 2000-14 and since 2021. Food crop prices increased and decreased back during the 1970s, spiked in 2006 and have remained high since. Automobile prices increased from 1973 to 1997, and after 2020. The failure of domestic industries to control inflation to the different degrees during certain times indicates higher prices are caused by factors specific to the industries during the period, specifically government favoritism and the concentration of suppliers.
Government-established monopolies have been causing high and often inflating prices since 1965. During the 1970s, consumer price inflation was high in all six major markets. From 1985 to 2000, it was largely just education and transportation. The U.S. got a bit of a reprieve from inflation with policies that didn’t really help the economy, including price controls imposed on much of health care at the expense of quality, global oil overproduction and low prices in response to previously high prices that would lead to higher prices in the future, high interest rate suppression of the demand for homes, and agriculture crop surpluses resulting from a shortage of markets. From 2000 to 2020, consumer price inflation was increasing in five of the six markets, with the exception being transportation.
Most economists have attributed the inflation since 2021 to the government response to the Covid pandemic and the Russian invasion of Ukraine. The response to the Covid pandemic of 2020 increased inflation, especially for homes and cars. In 2022, the Russian invasion of Ukraine disrupted supply and increased inflation, especially in energy and food. But both events likely caused mainly short-term spikes, and prices began dropping from highs, as soon as the Fed started raising interest rates.
Moreover, neither event should have caused inflation. Policymakers were misled by public health scientists using flawed Covid models that falsely showed that the entire population, and not just those most at risk, must be protected with social distancing. They pursued economic shutdowns that disrupted global supply chains, while also jeopardizing the world’s health. Meanwhile, excessive stimulus packages increased consumer demand and inflated prices. Policymakers are still being misled and not preparing the nation, and especially the health care system, for future pandemics. Policymakers should also not be favoring the OPEC plus Russia oil cartel and domestic Big Oil & Gas companies.
Since 2021, economists haven’t fully recognized the current economic problems created by the high inflation in the six major necessities. In the short term, higher inflation has deceptively led to increased consumer demand and faster economic growth. That’s because inflation encourages consumers to spend, instead of saving over time. Businesses increased supply with short-term investment, and the hiring of more workers, especially since inflation-adjusted labor costs are lower. These conditions helped encourage the recent “bear stock market rallies.”
Economists have failed to recognize that government policies favoring special interests and especially monopolies are causing inflationary pressures into the near future. The Fed’s biggest concern is inflation for health care and education. As of February 2023, it accounted for 56% of underlying inflation (excluding food and energy), and hasn’t budged. Most of those price increases are driven by rising wages, especially due to a shortage of government-licensed professionals. Prices for education and health care are not about to change without severe Fed intervention.
But economists have failed to recognize that inflationary pressures are also growing as governments favor monopolies using favored energy and material resources. Forests, sand, oil and gas, and metals are depleting and requiring inefficient and environmentally-destructive production. These are increasing prices for housing and energy, and energy policy is also inflating prices for food and transportation. The failure of U.S. policymakers to work with China will lead to much higher prices for manufactured goods, including wind and solar energy, microchips, cars and apparel.
Consider consumer price inflation in the six markets since 1965 in more detail:
EDUCATION – The monopolies of non-profit schools dominating America's educational system have taken advantage of a lack of competition to cheat students and the country by demanding outrageous and skyrocketing prices while offering dubious quality, since even before 1965. The educational system is inflating state taxes needed to pay the bills, while not preparing the nation for the challenges ahead, especially the many different technologies. The political right seeks to reduce funding at the expense of quality, while the left wants to increase spending even more. Biden is trying to transfer student debt onto the taxpayers without eliminating the cause of the high costs.
HEALTH CARE – Health care markets charge inflating and high costs for low quality. The “U.S. health care crisis” started in 1965, when the government increased demand with the passage of Medicare and Medicaid, while restricting the supply of doctors, nurses, hospitals, medicines and insurance. Around 1990, price controls imposed on much of health care, especially through Medicare and Medicaid, started reducing the rate of inflation at the expense of quality. Now, Biden is doing the same with prescription drugs (about 12% of health care costs). Pharmaceuticals already have limited effectiveness and more side effects due to the high costs of clinical trials within the monopolized health care system and monopoly control of medicines. The political right only seeks to reduce government spending on the poor and elderly, while the left seeks to reduce quality for everyone.
HOUSING – Home prices have inflated about as much as health care since 1965, and education since 1997. The consumer price index for housing is lower because it only measures rent. The index considers owned housing units as capital goods (or investment), and not as consumption goods. But people would rather own homes, for the freedom, stability and tax benefits. From 1980 to 1997, home ownership rates were lower than those in the 1970s, due to high building costs and interest rates. Home prices were inflating at about the same rate as the consumer price index for housing. After 1997, the lowering of interest rates, meant to compensate for rising building costs, lowered mortgages but increased home asset prices. Home prices have increased at almost twice the rate of the consumer price index for housing, especially because the cost of building new homes has also been increasing rapidly.
Since the 1970s, the cost of building new homes and other housing has been inflating rapidly. Local government regulations supported by landlords and existing homeowners have increased the costs of compliance of building new homes and limited the total supply of homes, while making their used homes more valuable. Building costs have also inflated because politicians enforcing these and other regulations favor construction monopolies, considered to make up the world’s least efficient industry. Building material costs have inflated due to depleting reserves, shortages and higher prices caused by government environmental regulations, and also regulations favoring monopolies. Housing requires depleting supplies of forests for lumber and other wood products, sand for cement and glass, oil and gas for plastics, and metals such as copper and aluminum. Forests are levelled for manufacturing, construction, and land-intensive agriculture, especially grazing. From 1970 to 2020, prices for both lumber and concrete increased to about seven times as much.
Since 1997, government home financing monopolies created two bubbles of consumer demand, sales and prices of used homes, and the supply and costs of new construction. During the late 1990s and early 2000s, the government stimulated home ownership through public financing monopolies, easy credit and low-interest rates, even beyond what many consumers could afford. Prices inflated even more for homes, construction, materials and labor. From 2005 to 2008, the government responded by tightening credit, and the housing market crashed with reduced prices and supply during the Great Recession. Homeowners had higher principals than the home was worth, and many with variable-rate mortgages lost their homes.
When demand was stimulated again after 2010 and especially after Covid hit in 2020, prices inflated again even higher. A slower return of monopoly suppliers and especially workers to the industry, likely due to concerns about another crash, appears to have kept home prices higher for longer. More homeowners started applying for variable-rate mortgages again. Now, the government is responding to rising home prices and other inflation with higher interest rates that are causing another crash. Building costs for new homes appear to be dropping fast and existing home prices are sure to follow.
ENERGY – Energy inflation has been caused mostly by the inflation of prices for oil, as the global reserves that allow for low-cost recovery are depleted. The OPEC plus Russia cartel has the world’s lowest-cost oil reserves and controls 71 percent of global oil exports. They use the market power of their cartel to cause a cycling and volatility of global oil prices. OPEC limited production for gouging with ten times higher prices from 1973 to 1984, and four times that from 2000 to 2014. After high prices caused overproduction and lower prices, they maintained or increased production to wipe out competitors with predatory lower pricing from 1984 to 2000 and 2015 to 2020.
U.S. shale oil production has been responsible for almost all of the recent growth in world oil production. Since 2015, OPEC and these higher-cost shale oil producers have been limiting investment and future competition to set up the current crisis of limited supply and high prices since 2021. The Russian invasion of Ukraine caused some initial spikes in prices, but many countries have continued to buy oil from Russia. Natural gas is used at lower costs as a by-product of oil recovery and when used locally for heating and electricity. Natural gas prices have increased to about ten times as much since 1973 and were higher from 1979 to 1986, 2001 to 2009, and 2022.
Public utility monopolies provide electricity and distribute natural gas. Electricity utility monopolies have been transitioning from fueling generation from mostly coal and nuclear to much more natural gas, due to preferential environmental and safety policies. Electricity prices have increased to over eight times as much since 1970, and were higher from 1970 to 1985, 2000 to 2009, and since 2021.
Electricity utility monopolies have also been transitioning to about 9.2% wind and 2.8% solar energy. Utility-scale wind and solar has required manufacturing subsidies that have lowered the nominal electricity costs from nearly 10 to about 4 or 5 cents/kWh (pre-energy crisis), and generation subsidies that have further lowered costs to as low as 2 cents/kWh. In addition, transmission and distribution have added costs due to both lower capacity factors and the longer distances often required. Inefficient backup with natural gas has nullified most fuel savings and environmental benefits.
Costly recovery of depleting oil and natural gas reserves has required large amounts of depleting sand resources, while toxic chemicals are injected into the ground near water resources. Since 2015, the industry has been limiting investment, causing inflationary pressures. Many experts believe the U.S. shale boom is over, whether due to depleting reserves or “regulatory uncertainty.” A slower return of domestic suppliers and workers to the industry is likely due to concerns about another crash in oil markets, which the government, especially the Fed, are now causing. The U.S. government is expected to increase the amounts of ethanol vehicle fuel made from expensive corn and especially even more costly cellulose with mandates and subsidies.
Recently, electricity utility monopolies have been trying to transition to a national electric grid powered by virtually all wind, solar and batteries. The cost of the national grid would double or triple electricity prices in today’s dollars, or 16 to 24 times as much as in 1965. That doesn’t include increasing material and other costs in the future. Wind energy, limited by shortages of suitable sites, requires rare earth elements laced with radioactive thorium and uranium. Solar energy covers land with panels made from sand and metals, including highly toxic cadmium and chromium. Compared to conventional generation and transportation, wind, solar and electric vehicles require batteries made from five minerals whose domestic supply is at risk, especially lithium, and two to eight times as much copper, especially for transmission. Electric vehicles use far more microchips, made from special sand. The use of mandates and subsidies can be expected to cause increasing inflationary pressures and debt, respectively.
FOOD – Food production monopolies offer reduced quality with unhealthy processed food and red meat that increases health care costs and premature deaths, especially among the poor. This is partly because they specialize in the most highly subsidized crops (corn, soybeans and wheat), which have become the most abundantly produced and consumed. Another reason is the health care monopolies have been slow to educate people about proper nutrition. The U.S. has been producing about 31% of the world’s corn and 35% of the soybeans, and a leading exporter. During the 1970s, prices for grains and oilseeds inflated due to an increase in global demand, especially from the Soviet Union, but quickly fell back down.
After 2003, U.S. government mandates and subsidies favoring biofuels made from corn and also soybeans grown on prime farmland caused a global food crisis from 2006 to 2008. The crisis resulted in initial skyrocketing consumer price inflation, especially for corn and soybeans, prices for food crops that have remained 30 percent higher, and increased land values and costs. In 2022, the Russian invasion of Ukraine and Biden’s increased corn ethanol mandates took even more global acres out of food production and sent crop prices even higher. Billionaires like tech Bill Gates are buying up farmland.
Ethanol fuel feedstock costs using corn have remained higher since 2006, which has limited future ethanol fuel growth, except in times of very high oil prices and long-term mandates. Cellulosic ethanol now receives preferential mandates and subsidies even though it is too expensive to process. Meanwhile, the sugar crop sweet sorghum, which can be grown on less efficient pasture and other marginal lands with lower inputs of nitrogen fertilizer and water, is blocked because government discourages the use of the crop waste for electricity generation by favoring the use of natural gas, wind and solar with preferential policies. The U.S. has also convinced nations in the southern hemisphere to favor these energy sources over the very efficient sugar cane crop.
TRANSPORTATION – The consumer price index for transportation is determined mostly by prices for automobiles and other related expenses, including fuel. Before the 1970s, vehicles were simply made from steel, rubber and glass. The U.S. government caused consumer price inflation of automobiles by allowing OPEC to cause oil crises and regulating fuel efficiencies and exhaust emissions. The oil crisis of 1973 caused many consumers to seek more fuel-efficient vehicles. In 1975, the U.S. government started regulating emissions from new automobiles. From 1975 to 1995, the prices for new automobile more than doubled. The need to improve fuel efficiency led automakers to make vehicles lighter by replacing steel with aluminum, plastics, fiberglass, and smaller amounts of lead, copper, titanium and magnesium.
During the 1980s, Japanese automakers offered superior fuel-efficient vehicles. So, the U.S. slapped import quotas, on top of tariffs, on them, while providing bailouts for America’s Big 3 automakers. After 1997, American car companies were able to stabilize prices through free trade agreements that allowed China to do much of the manufacturing. But the Great Recession reduced consumer demand, caused the 2008–10 Automotive Crisis and led the government to bail out the industry again.
Since 2020, automobile prices and material costs have been inflating again due to government mandates and subsidies promoting electric vehicles. Even after the price for electric vehicles is reduced by mandates and subsidies, the average price of an electric vehicle is still about $18,000 more than the average price of a gas vehicle. Electric vehicles require more lead, copper, titanium and magnesium. In addition, the batteries used in electric cars are made from lithium, manganese, cobalt, graphite, and nickel. The domestic supply is at risk for these five minerals, especially lithium. Although the Covid shutdowns of U.S. automakers and suppliers in Asia may have precipitated microchip and metal shortages, electric vehicles require far more microchips, made from special sand, than conventional cars. Taiwan largely controls the microchip market, with the help of patents, and is unwilling to produce the best microchips outside of their country. The tensions between China and its neighbors, especially Taiwan and Japan, threaten future automobile supply and prices. Biden is creating more debt by subsidizing favored and uncompetitive U.S. microchip companies.
Polls of automakers have predicted zero emission vehicles fueled by hydrogen will eventually win out. The Japanese automaker Toyota is developing hydrogen cars for the Brazilian sugar cane ethanol industry.
INFLATION EFFECTS There are many reasons why government must stop inflation now. For consumers, inflation is eroding purchasing power, especially for low-income families, the elderly on fixed incomes, and those holding variable interest rate debt. For labor, expectations of future inflation are leading to a wage-price spiral with workers demanding larger wage increases and employers passing on those costs as higher prices. For business, inflation is blurring price signals, causing redistributions of purchasing power, creating difficulties in long-term planning, misleading investment decisions, leading to waste and bankruptcies, disincentivizing investors, and reducing the value of stocks and bonds. For the economy, it is raising interest rates, wreaking havoc on economic activity, slowing economic growth, and causing booms and busts.
III. MONETARY AND FISCAL MANIPULATIONS
The nation should eliminate government policies that unnecessarily limit supply compared to demand, suppress competition and favor monopolies. Competition allows consumers to demand quality goods and services at a lower price. It would increase economic growth, while reducing inflation. When combined with a level playing field, economic growth is the most powerful instrument for improving the quality of life and reducing poverty. Strong growth and employment opportunities improve incentives for parents and children to invest in education. It can lead to strong and growing groups of entrepreneurs. It advances human development, which promotes more economic growth.
Instead, the U.S. government just manipulates interest rates and deficit spending to temporarily prop up economic growth suppressed by government policies favoring monopolies, while controlling inflation at the expense of quality, stock market crashes, recessions and eventual debt collapse. The government relies on the Fed to conduct alternating periods of stimulation and dampening of the economy by cutting and raising interest rate through the buying and selling of Treasury notes and mortgage-backed securities from and to its member banks, respectively. Meanwhile, it adds and subtracts credits to and from the banks' reserves, respectively. Government often uses deficit spending, that is spending in excess of revenue and funded by borrowing, to increase consumer demand and stimulate economic growth, especially after crashes.
The Fed creates booms by lowering interest rates that decrease the cost of borrowing for both corporations and consumers, with the result of increasing corporate revenues, profits and stock values, along with private debt. Lower borrowing costs leads to higher consumer demand, and thus tends to lead to higher corporate revenues and prices. The Fed causes busts of the economy to contain inflation by increasing interest rates that increase the cost of borrowing for both corporations and consumers, with the result of reducing corporate revenues, profits and stock values. Higher borrowing costs lead to lower consumer demand, and thus tends to lead to lower corporate revenues and prices.
Now, the Fed seeks to raise interest rates high enough to stop inflation while minimizing the slowing of economic growth. However, the Fed is limited by many unknowns including: the factors of supply and demand throughout the economy, a time lag of a year or more between manipulation and the full economic effects, the difficulty of determining whether inflation is being reduced by decreasing demand or increasing supply, and snowballing effects, for example, as job loss and lower wages reduce consumer demand. Since the Fed wants to error on the side of stopping inflation, booms and busts are more likely than a prolonged soft landing. Moreover, investors would not want to participate in a long, slow decline of the stock markets.
Slower economic growth brings higher unemployment, slower improvements in living standards, lower tax revenues to spend on public services such as education and health care, the need for increased government borrowing, and political turmoil over wealth disparity.
After the stock markets and economy have crashed for a sufficient time period to kill inflation, the government will likely start to use lower interest rates and deficit spending to stimulate the economy and increase stock prices back up. Deficit spending will stimulate the economy in the short-term at the expense of creating public and private debt in the long-term. Few economists even understand the problem with forcing high and exponentially-growing levels of debt on future generations.
Compared to the problems of raising interest rates and surplus spending, there are more insidious problems created by lowering interest rates and deficit spending. Coupled together, they can drive down business confidence and investment, which drags down productivity and growth. Both will likely lead to higher costs of capital for the private sector, which will stifle innovation and productivity, and reduce the future growth potential of the economy. Both lead to an increased risk of causing, and a decreased ability of responding to, financial and/or fiscal crises.
The lowering of interest rates leads to other problems by itself especially setting up crashes. It discourages national savings and income. Low interest rates provide lower interest amounts to savers whose main focus is the preservation of capital and income. This is because yields on bonds, CD’s and money market instruments are very low. Banks and insurance companies are also negatively affected by low interest rates. Insurance companies invest their assets long-term with the assumption of higher rates on their capital. Banks can suffer as their “net interest” margin, or the spread between the rate at which they lend funds and interest they must pay on deposits is compressed.
In addition, low interest rates encourage speculative investments and asset price inflation, especially in stocks and real estate, and speculative asset-price boom-busts. Asset price inflation results in a transfer of wealth from the middle class to the wealthy and growing wealth inequality. It favors those who already own housing assets over first-time homebuyers. The lowering of interest rates can lead to consumer price inflation when the demand for goods or services increases. It can also lead to liquidity traps, where almost everyone prefers holding cash rather than holding a debt with a low rate of interest, which undermines the effectiveness of low rates.
Deficit spending has its own set of problems. Over time, increased government borrowing debt can crowd out private investment. It can also crowd out public investment as growing interest payments consume a larger portion of the federal budget, and eventually require large spending cuts and/or tax hikes. Higher debt levels require lower interest rates to minimize interest payments and even higher debts. If the government’s debt keeps rising, investors may question the government’s ability to repay the debt, and may demand higher interest rates or seek other countries for investment. If inflation keeps rising and reducing the value of the debt, investors may think the government is trying to reduce its debt obligations.
The average U.S. growth rate has only been 3.12% since 1948, even while stimulated with increasing debt since 1980. In 2020, two economists at George Mason University conducted a literature review of 24 worldwide economic studies that found each 10-percentage point increase in the national debt above 90 percent of GDP results in a decrease of about 0.2% in the annual real per capita GDP growth rate. As the debt increases, there will also be higher probabilities for inflation, stock market and/or housing crashes, and recessions or depressions, especially if and when policy mistakes are made with either keeping interest rates low enough and/or deficits high enough.
The federal debt held by the public is already too large at almost $32 trillion or 100 percent of GDP after 2021. The fiscal year 2022 deficit is $1.4 trillion, and the fourth largest nominal deficit in history. It is $1.4 trillion less than the 2021 deficit of $2.8 trillion, but $391 billion more than the pre-pandemic deficit of $984 billion recorded in 2019. The national debt doesn’t even include many commitments for future spending that are not on the books, including Social Security, Medicare, Medicaid and home and college loan guarantees. Social Security and Medicare cost more than half of federal revenues. Medicare will cost double by 2033 and its hospital funds run out in 2028. In 2032, Social Security will collapse.
The Congressional Budget Office (CBO) concludes that the economic outlook has deteriorated substantially as the national debt is expected to grow unsustainably. The CBO projects the federal debt will reach 116, and perhaps even 138, percent of GDP by 2032 (by far the highest debt levels in the nation’s history). The federal debt will reach 185 percent of GDP by 2052. They expect annual deficits to reach 6.6 to 10.1 percent of GDP in 2032 and 11.2 percent of GDP by 2052. The CBO finds that “perhaps most troubling” is interest spending. Driven up by large and sustained primary deficits and rising interest rates, they expect interest payments to rise to between $1.3 and 1.6 trillion by 2032. Net interest outlays will reach a record 3.4 to 4.4 percent of GDP by 2032, and more than quadruple to 7.2 percent of GDP by 2052. The debts projected by the CBO would reduce economic growth by about one-half to nearly a full percentage point by 2032.
A nonpartisan group at the University of Pennsylvania's Wharton School projects the national debt to rise to 133% of GDP by 2032 and 225% by 2050. The debts projected by the Wharton School would bring a near zero economic growth rate by 2050.
IV. STOCK MARKET CRASHES
Since the founding of the Fed, the U.S. government has caused five major stock market crashes starting in 1915, 1929, 1965, 2000 and 2007, along with subsequent recessions or depressions in the economy. Each major crash was precipitated by raising interest rates and reducing deficit spending. These monetary and fiscal policies were necessitated by the need to end consumer price inflation and/or inflated asset market prices. In turn, inflation was preceded by cutting interest rates and increasing deficit spending. These policies were necessitated by the need to stimulate economies slowed by government policies favoring monopolies and often also military spending. “And round and round it goes” in a vicious cycle.
Moreover, a major crash has resulted every time the Fed has reached its goal of reducing consumer price inflation and/or inflated stock market prices by raising interest rates, while the government reduced deficit spending. These periods were 1915-22, 1925-30, 1950-1981, 1994-2000 and 2004-7.
There have been some less significant stock market crashes and recessions that deserve only mention. The crashes in 1917, 1941 and 2020 were caused by fears of wars and a pandemic, but were soon reversed by lower interest rates and massive deficit spending used to meet the aggression. The crashes of 1937 and 1946 and subsequent recessions were preceded by rising interest rates and limited deficit spending like the major crashes, but 1937 was part of the recovery from the Great Depression while 1946 was fortuitously soon reversed by the exceptional post-war boom. The crashes in 1968 and 1972 and subsequent recessions were preceded by rising interest rates and limited deficit spending, but occurred within a major crash. The crash of 1987 was preceded by rising interest rates and reduced deficit spending, but was a brief and steep up-and-down blip within a major boom.
The following top graph illustrates the peaks and troughs of the five major Dow stock market crashes on a logarithmic scale and adjusted for today’s dollars. Nominal stock market numbers were flat from 1965 to 1982, but real values actually crashed after adjusting for inflation. Gold was a better investment than stocks, although oil, health care and defense companies did well. The bottom graph shows when interest rates were increased. Increasing interest rates by at least three percentage points, along with reduced deficit spending, eventually precipitated all five stock market crashes. Each crash played out over several to many years.
A brief analysis of the specific causes and effects of the specific major crashes can be used to predict the potential for another major crash:
1915 – During the Progressive Era from the 1890s until the 1920s, government favored monopolies with preferential policies including: Fed favoritism for big banks, nationalization of telephone and education, exclusive territories for electricity and natural gas utilities, quotas for oil and gas producers, a cartel of airlines, zoning for real estate, restrictive licensing for medical professionals, and patents for pharmaceuticals. After the Fed started cutting interest rates in 1913, the Dow stock market rose and peaked in 1915. That year, the Fed started raising rates and the stock market dropped in 2016. During 1917 and 1918, deficit spending for World War I, along with flat interest rates, caused rampant inflation and a spike in stock prices. After deficit spending ended with the war, the Fed rapidly raised interest rates in 1920. The stock market crashed and the economy suffered from the depression of 1920-1.
1929 – Monopolization grew as the depression of 1920-1 led to manufacturing monopolies by bankrupting many competitors, including those of the Big Three automakers. After the Fed cut interest rates from 1921 to 1925, the so-called Roaring 20s brought inflation from 1923 to 1925 and a booming Dow stock market from 1921 to 1929. After the Fed started raising interest rates in 1927, the stock market crashed in 1929 and the economy tanked. During the 1930s, the Fed cut interest rates, but FDR resisted further deficit spending. The Fed even raised, before lowering, interest rates in 1935 to cause stock market losses and the recession of 1937-8. These policies prolonged what could have been a shorter recession or depression into 12 years of the so-called Great Depression.
1965 - Deficit spending during World War II, along with low interest rates, brought economic recovery, inflation and stock market gains. After the war, the Fed started raising interest rates to cause a brief stock market decline and recession. From 1950 to 1965, the U.S. enjoyed an unprecedented post-war boom by exporting manufacturing goods to the rest of the developed world that had been decimated by the war. The stock market boomed, even while the Fed raised interest rates and the nation paid back war debt. After 1965, the government caused health care and oil inflation, and spent on the Vietnam War. Initially, the Fed raised interest rates slowly while the government ran small budget deficits, causing a long, flat stock market with sharply declining real value due to inflation. Finally, the Fed raised interest rates rapidly and high around 1978, causing a severe recession in the early 1980s.
2000 - After 1981, the Fed started cutting interest rates and the government increased deficit spending, especially on defense. During this time, the government also started to use price controls to control health care oil inflation, which was also contributing to deficit spending, and oil inflation moderated with increasing global production responding to high prices. The stock market boomed. During the 1990s, the stock market and especially speculative growth stocks like tech were still booming and forming a bubble. The Fed raised interest rates starting in 1993, and even higher in 1999, to stop the “irrational exuberance” while the U.S. government ran budget surpluses from 1997 to 2001. The stock market, especially tech, crashed in 2000, and the economy retracted during the recession of 2001.
2007 - In 2001, the Fed started cutting interest rates and the government increased deficit spending. The administration promoted home ownership to increase personal equity. The stock market boomed back to its prior peak (in 2000) and home prices inflated. In 2003, Bush invaded Iraq and OPEC brought back oil price inflation. From 2005 to 2008, the Fed raised interest rates and the government decreased deficit spending. In 2007, the stock market and home prices crashed. The weak economy suffered through the Great Recession until 2009.
The following table summarizes the causes and effects of the five major crashes. The crashes caused Dow stock market losses of 35 to 85 percent. Losses were lowest after 2000 and highest after 1929. Losses were not recovered until six to 30 years later. Only then could gains start to be accumulated again. All major crashes have had brief bear market rallies along the way down, as does today’s market. With the exception of 2000, the crashes were followed by the most severe recessions and depressions experienced by the economy. The table also compares some initial information about the likely coming crash.
V. COMING CRASH AND COLLAPSE
Since the beginning of the Great Recession, the government has been pursuing policies that have been creating the conditions for another stock market crash and recession, if not depression. After the Fed cut interest rates and increased deficit spending in 2008 and 2009, the stock market boomed until 2020 and again until 2022. The Covid shutdowns and stimulus packages starting in 2020 and the Russia-Ukraine War in 2022 precipitated inflation since 2021. The Fed responded to inflation by raising interest rates while the government reduced deficit spending. In 2022, the stock market losses were about 14 percent for the DOW, and much higher in the broader S&P and tech-heavy NASDAQ. The stock market decline is leading to another severe crash and recession or worse, if the past history of market crashes is any indication.
Consider the recent causes and effects in more detail:
2008-15 - The Fed cut interest rates excessively to near zero for seven years, while the government greatly increased deficit spending. The stock market boomed and recovered a bit beyond its prior peaks (in 2000 and 2007). When the Fed started raising rates by small increments in 2015, the stock market went flat.
2017-19 - The new administration led the cutting of the corporate tax rate and the stock market boomed by about 7000 points. From 2018 to June of 2019, the administration threatened a trade war with China and the stock market went flat again. From June to September of 2019, the Fed cut interest rates and the stock market started increasing again.
2019-20 - At the end of 2019, Covid-19 was reported and the stock market started a steep decline from January to March of 2020. In January, the Fed stimulated the economy by cutting interest rates to zero again, along with quantitative easing (QE) and lending programs. Starting in March, states implemented shutdowns of the economy (in order to prevent the spread of COVID). In late March of 2020, the government started deficit spending with trillions of dollars of economic stimulus. Demand increased, especially for homes, especially as city dwellers rushed to the suburbs, and cars. The stock market boomed back far beyond previous highs.
2021 - Inflation started in April of 2021, but the Fed and administration claimed it was temporary. The shutdowns had created supply chain problems, especially for home construction and auto manufacturing. There were more severe building material shortages, including lumber, metal including copper shortages, microchip shortages especially for cars, and shipping logistic problems. There were also labor shortages and lower productivity with increased retirements, working from home, and long Covid. The result was inflation, overpayment for houses and cars, and a depletion of savings. The Fed still did not raise interest rates to reduce demand and borrowing by both businesses and consumers. The stock market went flat until December of 2021.
2022 - Russia started threatening Ukraine in December of 2021 and then invaded Ukraine in February of 2022. The Russian-Ukraine war caused global trade disruptions in oil, natural gas, grain, fertilizer, neon gas needed for microchip manufacturing, and battery components. An energy crisis developed in Europe. Fertilizer exports were constrained, because Russia and Belarus were providing 40 percent of the global potash trade. Russia alone exported about 20 percent of nitrogen and 10 percent of phosphate. Inflation accelerated, especially for energy and food, and the stock market declined. In March of 2022, the Fed started aggressively raising interest rates by huge 75 basis point increments as the government reduced deficit spending. Inflation and the stock market started declining again, especially growth stocks like tech, crypto collapsed, and bank loans for homes and cars went underwater. From September to December of 2022, the stock market regained some of its losses in a bear market rally. Some investors had unrealistic expectations for a so-called soft landing while others thought the Fed would pivot to lower rates even before beating inflation.
2023 - Now, China is threatening Taiwan and their microchip industry, and India has been supportive of Russia and China. Globalism and global trade are retreating. China has been suffering from covid shutdowns and, after the lifting, runs on their hospitals. The U.S. government is trying to move from dependence on Asia with investments in wind, solar and microchip manufacturing, even though the country is far behind. The U.S. defense of Ukraine, and the threat of illiberalism and even nuclear war has led to increased defense spending.
Since 1965, the U.S. economy has been wrecked by inflation resulting from supply shortages caused by government policies supporting monopolies, along with increased demand from low interest rates and deficit spending. While the economy has been dragged down by high monopoly prices, deficit spending and lower interest rates have been needed to stimulate economic growth. Government has pumped the stock market and economy higher and higher with lower and lower interest rates and more and more deficit spending and debt. Since 2008, near zero interest rates and massive deficit spending have been needed just to maintain stock market levels. Now, inflation has caused the nation to raise interest rates and decrease deficit spending, while the global economy is unwinding.
The government has been left with little choice other than allowing the crashing of the stock markets. Certainly, the government cannot continue stimulating the economy without maintaining or even increasing inflation. An alternative would be a prolonged decline of the stock market with inflation reducing values like the 1970s, which eventually required even higher interest rates and ended in a severe recession anyway. Moreover, the Fed would lose their credibility and ability to tackle inflation. The rapid and high increases in the Fed discount rate and reduced deficit spending indicates the government is choosing a quick stock market crash and recession or even depression like prior crashes.
The question is how far could the stock markets crash. Clearly, the U.S. economy peaked in 1965: consumer price inflation was low, interest rates were a healthy five percent, there wasn’t a major war, the national debt from World War II was being paid down, and the Dow stock market peaked at almost $10,000 in 2022 dollars. Since the Dow stock market has been artificially inflated in value since 1965, it may crash toward the levels of that period or less than $10,000 in 2022 dollars, before the government can stimulate the economy again.
Economic recovery from the crash will likely require near zero interest rates again and even more deficit spending. But there is no guarantee that nation can and will provide the massive deficit spending needed. The government and domestic investors are limited. Foreign governments aren’t interested.
Although some conservative economists have shown concern for the debt, they don’t offer reasonable solutions. Some conservative politicians have shown signs that they want to balance the budget, and don’t want to bail out investors after crashes. They have been trying to limit deficit spending, even when economic growth is low, through for example the Congressional debt ceiling. Their plans usually involve cutting health care spending for the poor and elderly. However, they will be pressured into reversing this position because it would cause a stock market crash on the order of 1929, and an economic disaster like the Great Depression. Some politicians that are threatening to default on existing debt are probably not serious because that would bring even more dire consequences.
Leading liberal economists argue that deficits and debt can be ignored at this time, as long as it doesn’t cause inflation. Stephanie Kelton, a prominent advocate of modern monetary theory, says that “we should think of the government’s spending as self-financing since it pays its bills by sending new money into the economy.” The government is too political to spend productively or fairly. Progressives were willing to spend an estimated $40 to 90 trillion on the Green New Deal. Government spending should be eliminated as much as possible, and necessary spending should be the focus of vigilant scrutiny.
Michael Pettis, professor of finance at Peking University, says “Most economists have trouble understanding why too much debt may harm an economy.” The federal debt held by the public is already too large, as indicated by its drag on economic growth. Moreover, the debt is growing exponentially as the interest expense is continually compounding and adding to the existing debt. Meanwhile, rising interest rates used to reduce inflation are increasing the interest payments on the debt, deficit spending and the debt.
The graphs below of the actual and projected debt and an exponential growth curve superimposed on the actual timeline demonstrates the debt is growing toward an asymptote around the year 2082:
Sometime, likely well before 2062, investors are sure to realize the debt is unsustainable and bail out on the country.
ADDENDUM Defense of Supply-push Inflation
This addendum will defend the existence of supply-driven inflation, and propose “supply-push” as a separate and significant second cause of supply-driven inflation and third cause of consumer price inflation. It is a more detailed response to an unbeknownst number of Austrian economists who have criticized the supply-push theory. Most Austrian and Monetarist economists, who are in the minority of economists, have disputed the existence of any type of supply-driven inflation, or even any demand-pull inflation other than monetary expansion. While on the way to responding to their criticisms, this addendum will also serve as a response to anticipated criticism from Keynesian economists, who are in the majority. Most Keynesian economists have recognized demand-pull and cost-push, but not supply-push inflation.
First, the definition of inflation should be established. The Fed defines consumer price inflation as price increases for goods and services over time. It is calculated for both specific goods and services, and as a total basket of goods and services. The price inflation for assets like homes is considered separately. Austrian economists have defined inflation as the increase of the money supply out of “thin air.”
Second, the role of the market mechanism in creating and controlling inflation should be established. Austrian economist and journalist Henry Hazlitt explained that “Prices are fixed through the relationship of supply and demand … When people want more of an article, they offer more for it. The price goes up. This increases the profits of those who make the article. Because it is now more profitable to make that article than others, the people already in the business expand their production of it, and more people are attracted to the business. This increased supply then reduces the price.” Clearly, both supply and demand play a role in the inflation and disinflation of prices of goods and services.
Third, the causes of inflation need to be defined. Demand-pull inflation results when consumers are willing to pay higher prices for a good or service, due to such factors as low interest rates, government spending, consumer confidence, export demand, inflation expectations, and the government printing too much money. Cost-push inflation occurs when production costs increase, such as higher prices for materials or wages. The proposed supply-push inflation results when monopolies restrict supply, and the government bars or discourages others from expanding into the markets.
Fourth, the three schools of economic thought need characterization. Keynesians support government intervention, while Austrians and Monetarists claim to support free markets. Although Keynesians have demonstrated concern for monopolies, they falsely claim monopolies are created by markets. Although Austrians and Monetarists realize monopolies are created by government, they largely ignore them. These beliefs could help explain the reason that none of the economic schools recognize supply-push inflation caused by government policies favoring monopolies.
Finally, the views of the three schools of economic thought on inflation need critique. The views of the economics profession in general, and particularly Keynesian economists, was expressed by the Congressional Research Service (CRS) in their October 6, 2022 publication “Inflation in the U.S. Economy: Causes and Policy Options.” They stated: “Inflation can be thought of as a mismatch between overall supply and demand … Supply-driven (or cost-push) inflation is associated with a decline in output, while demand-driven (or demand-pull) inflation is associated with a rise in output.” They admit COVID-19 caused disruptions to the supply side (output), as well as the demand side (spending).
CRC explains: “Demand-driven inflation can be caused by fiscal or monetary stimulus or originate in private spending dynamics. But in the long run generally, inflation is said to be … driven by monetary policy… Inflation that is caused by an increase in aggregate demand (overall spending) absent a proportional increase in aggregate supply (overall production) is known as demand-pull inflation… typically the productive capacity of the economy does not immediately adjust to meet higher demand… To increase production, producers may attempt to hire more workers by increasing wages. Assuming producers are not willing to eat into profits in order to ramp up production, they are likely to increase the prices… thereby creating inflation. Inflation can work to lower demand and increase supply and thus can be the means to bring supply and demand back into equilibrium … Expansionary fiscal policy … would be likely to cause persistent increases in inflation only if such policy were persistently applied.”
CRS explains that “cost-push inflation is caused by a decrease in aggregate supply as a result of increases in the cost of production absent a proportional decrease in aggregate demand. An increase in the cost of raw materials or any of the factors of production (e.g., land, labor, capital, entrepreneurship) will result in increased production costs. The classic example of cost-push inflation is the result of a commodity price shock, which sharply decreases the supply of a given commodity and increases its price. ... It tends to result in only a temporary increase in inflation unless accommodated by monetary policy. Supply disruptions are often alleviated naturally, and for inflation to be persistently high, supply shock after supply shock would need to occur.” They admit COVID-19 caused ongoing supply disruptions to specific markets, which were then further exacerbated in 2022 by the war in Ukraine.
The views of Keynesian economists on inflation are flawed. The CRS acknowledges that demand-pull inflation can result from changes in private, as well as government, spending. But they fail to recognize that demand-pull inflation has resulted from expansionary fiscal policy because deficit spending has generally been increasing since 2015. They note that cost-push inflation has been persistent due to repeated supply shocks, although also accommodated by monetary policy. But they fail to recognize supply-push could also result from supply shocks continually applied by government using existing barriers to increasingly limit supply compared to demand. They fail to mention that neither inflation nor higher interest rates can efficiently lower demand and increase supply, if the good or service is a necessity and its supply is restricted by government and/or monopolies created by government.
The proposed supply-push inflation is different than cost-push. First, supply-push results when supply is restricted, while cost-push results from increases in the cost of production. Second, supply-push results from the restriction of supply caused by government favoritism for monopolies, while cost-push results from supply disruptions that are often natural and alleviated naturally, or from non-preferential government policies applied to meet societal needs. Third, supply-push results from within the industry producing the specific goods and services, while cost-push often results in factors or industries extraneous to the particular goods or services provided. Fourth, supply-push can be caused by increasing enforcement of the same barriers to supply created by government and monopolies, while cost-push requires supply shock after supply shock or new barriers or increasing restrictions. Fifth, supply-push doesn’t require a decrease in supply like cost-push. It could happen by decreasing supply while demand is increasing, stagnant or even decreasing. But it usually happens when supply is not increased enough to meet increasing demand, whether created by changing consumer preferences or monetary expansion.
Cost-push inflation includes costs added by an unexpected external event like a natural disaster, the depletion of natural resources, government regulations or taxation, changes in exchange rates, and the ability of monopolies to pass on added costs. A specific example of the causes of cost-push inflation includes government regulations limiting emissions from vehicles.
Supply-push inflation includes government restriction of the supply and favoritism for monopolies. Examples of supply-push mentioned in this study include government restriction of the supply of schools, doctors, medicines, homes, oil, electricity generators, agricultural crops and vehicles. Supply-push clearly includes government favoritism for OPEC, Big Oil & Gas, utility monopolies and the Big 3 automakers.
Some government policies have some characteristics of both. For example, allowing any business to meet supply tends toward cost-push. But favoring certain technologies, especially if patented or otherwise blocked from others, while excluding many others that could achieve the societal goals cost-competitively tends toward supply-push. Government policies favoring wind, solar, batteries, long-distance transmission and electric vehicles, as well as fuels made from corn and soybeans, could be considered to have qualities of both supply-push and cost-push.
CRS discussed solutions to inflation with the following reasoning: “Some commentators have argued for addressing inflation by tackling its cause. In other words, supply-driven inflation should be controlled via supply-side solutions, and demand-driven inflation should be controlled via monetary or fiscal tightening. However, as inflation is caused by an imbalance in supply and demand, any solution that brings the two back into equilibrium would be successful, regardless of underlying cause. Demand-side tightening has the advantage of being potentially faster and having a more substantial impact than supply-side solutions … Supply-side solutions take longer to be implemented and rely on individuals and businesses responding to incentives, making their effect more unpredictable and operating at the margins.”
There are two problems with favoring demand-side over supply-side solutions. First, increasing supply would increase economic growth while reducing demand could cause a crash of the economy. Second, government incentives for suppliers are a straw man supply-side solution, because they are both inefficient and preferential. Government should simply eliminate policies favoring monopolies, so everyone has the opportunity to respond with supply to meet consumer demands and government policies. By ignoring supply-push inflation, they are working on the other causes of inflation to the detriment of economic growth. Free markets would also reduce the need for government to manipulate interest rates to stimulate or reduce demand.
Austrian economists, like Murray Rothbard and Ludwig von Mises, serve their ideological need to fight government spending and wealth distribution by redefining inflation as the increase of the money supply out of “thin air.” Austrian economist Frank Shostak explains: “Historically, inflation occurred when a country’s ruler, such as a king, would force his citizens to give him all of their gold coins under the pretext that a new gold coin was going to replace the old one. In the process, the king would falsify the content of the gold coins by mixing it with some other metal and return impure gold coins to the citizens… Because of the dilution of the gold coins, the ruler could now mint a greater amount of them and pocket the extra coins minted for his own use… In the modern world, money proper is no longer gold, but rather paper money.”
Austrians are not even addressing the problem of consumer price inflation by changing the definition. Moreover, the problem has been that governments have been stealing much of the money, not that the currency was diluted. Most of the money and money-like instruments in modern financial systems are created by private banks to meet the increased demand for money, especially as the population increases and economies grow. Banks make loans, which create deposits and provide borrowers with the opportunity to invest in a way that enhances living standards. Moreover, monetary expansion does not result in inflation if the money is not spent.
One Austrian economist explains that a key point made repeatedly by Austrian economists, especially Haberler and Rothbard, is “government grants of monopoly privilege to firms can only cause a one-shot, one-time increase in price from the free-market price to the profit-maximizing monopoly price. Monopoly cannot cause ongoing inflation; only monetary expansion can do that. For monopoly withholding to drive a progressive inflation the government would have to continually pile on new regulations and barriers to entry until there was only one firm left in the industry charging a full monopoly price, at which point inflation would come to a screeching halt.”
This is the same point made by CRS, but none of these economists are considering government policies favoring monopolies that are continually and increasingly discouraging supply from responding to demand. Supply-driven inflation is persistent when it has been caused by continual supply shocks, especially as demand increases. Cost-push inflation resulted from repeated supply shocks after Covid disrupted supply chains. Supply-push inflation results when government-created monopolies and entry barriers continually and increasingly prevent the supply of a particular necessity from meeting demand.
Cost-push and supply-push inflation are alleged types of inflation caused by increases in the cost of goods or services that are a necessity and no suitable alternative is available. Businesses are forced to increase prices of their outputs as they face higher prices for underlying inputs. Some economists argue that such supply shocks can lead to persistent inflation due to adaptive expectations and the price/wage spiral.
For example, most of the inflation in the late 1960s and early 1970s was caused by health care inflation. While overall inflation averaged 4.19%, health care was over 6%, and apparel over 5% (but that contributes far less to the basket of goods and services). It was complicated by the inability to measure quality in the rate of inflation. Initially (from 1965 to 1972 and probably even later), the inflation was clearly caused by restricted supply of health care professionals while demand was increasing. But prices (for comparable quality) likely rose even faster than that measured by economists. Sometime after 1972, an increase in the annual number of newly-licensed physicians meant more demand was met and the attention to patients was likely being restored, thus causing an increase in measured prices (i.e., not considering quality), even as supply was catching up with demand. Moreover, it caused more than just higher prices in health care but also across all industries as workers demand more wages and benefits. President Nixon imposed federal wage and price controls in 1971, primarily because of growing health care costs. Then, the oil crisis hit in 1973 and the two of them were mostly responsible for the inflation of the 1970s. The Vietnam War was secondary.
Today, many of the necessities and leading components of the consumer price index provide examples of all three types of inflation:
K-12 Schools - Even though enrollments have been declining a bit, local K-12 public schools receive taxpayer subsidies that create public monopolies with no significant competition to force control of total or per student costs, or quality. The subsidies create entry barriers to new supply from potentially lower-cost, high-quality providers. Politicians have continually increased funding to schools to improve quality with little improvement, thus leading to ongoing supply-push inflation.
Higher Education - Since 1965, the annual demand for admission to college has been increasing with higher percentages of high school students seeking better job opportunities. But the government hasn’t expanded the number of subsidized four-year public and non-profit private colleges much at all, and enrollments in these colleges have not kept up with increasing demand. Taxpayer subsidies create entry barriers to new supply from potentially lower-costs from similarly high-quality providers. The restriction of supply, while demand is increasing, has caused ongoing supply-push inflation.
Health Care - Since 1965, demand has been increasing from Medicare, Medicaid, the Affordable care act, increased coverage of medical and hospital insurance, a growing and later aging population, rising personal incomes, and advances in electronic and mechanical devices, and pharmaceuticals. Meanwhile, the government has restricted the supply of doctors, hospitals, and insurance using existing entry barriers including state medical school accreditation, occupational licensing, certificate-of-need, and insurance regulation. The restriction of supply, as demand continues to grow annually, is causing ongoing supply-push inflation. Moreover, the inflation would be even worse if government financing programs were not also restricting payments at the expense of reduced quality.
Medicines - Since 1965, demand has been increasing for pharmaceuticals for much the same reasons as those for health care. Meanwhile, the supply of medicines has been increasingly restricted by the preferential granting of government research grants, Food and Drug Administration approval, and patents. The increased restriction of supply, as demand continues to grow, has been causing ongoing supply-push inflation.
Homes - Since 1997, the government has stimulated home ownership through public financing monopolies, easy credit and low-interest rates. Meanwhile, the government has increasingly restricted supply through local government regulations, like zoning, that have also favored construction monopolies. The government has also increasingly restricted the supply of building materials through increasing environmental regulations, that have favored supplier monopolies. The tightening of restrictions on supply, as demand continues to grow, is causing ongoing supply-push inflation.
Oil - The global demand for oil and by-product natural gas has been increasing along with worldwide economic growth. The U.S. government supports the use of market power by the countries of the OPEC cartel to alternatively restrict and expand supply to cause a cycling of global oil prices. Entry barriers are created by the higher costs of non-OPEC countries during times of decreasing supply, and the fear of getting bankrupted again during times of expanding supply. Moreover, the government uses preferential policies, especially environmental exemptions, to favor domestic Big Oil & Gas over other energy sources, especially coal. The entry barriers are discouraging increased supply, as energy demand continues to grow, thus causing on-going, although often also periodic, supply-push inflation.
Electricity - Until recently, the U.S. demand for new electricity capacity has been stagnant, although the global demand for electricity has been increasing along with worldwide economic growth. Recently, the political left has been mandating and subsidizing a transition by electricity utility monopolies to an expensive national electric grid powered by virtually all wind, solar, long-distance transmission, and batteries. Much like public schools, public utilities receive more revenue and profits from regulators (through regulatory capture), as they spend more on these high-cost energy sources. The mandates are likely causing some cost-push inflation. However, requiring the use of these particular technologies tends toward causing ongoing supply-push inflation. Moreover, the entry barriers created by allowing only utility monopolies to add the capacity is certainly causing ongoing supply-push inflation.
Crops - The global demand for food has been increasing along with worldwide economic growth. The U.S. government has favored the use of corn and soybeans for food with subsidies. From 2003 to 2006, increasing government mandates were also favoring biofuel made mostly from corn grown on prime farmland. After 2006, the mandates stopped increasing because it was causing crop prices to increase. Recently, mandates have been increasing for expensive-to process cellulose. In 2022, Biden’s increased corn ethanol mandates took even more global acres out of food production. As the government increases the mandates to higher levels, prices increase for ethanol and usually also crops. Although there may be some cost-push inflation resulting from the mandates, the favoritism for agricultural resources, and corn and cellulose in particular, over other resources is causing supply-push inflation. Moreover, favoritism for some agricultural conglomerates specializing in the favored crops may also be causing supply-push inflation.
Automobiles - The global demand for automobiles has been increasing along with worldwide economic growth. The U.S. government has created entry barriers by favoring the Big Three Automakers through the Securities and Exchange Commission, bailouts, and import tariffs and quotas. The government has also been demanding continually increasing fuel efficiencies and lower emissions over the fleets of these companies, that are continually increasing the overall costs of production. Moreover, the higher prices for new cars increase the prices of used cars. Since 2020, the government has been mandating even more expensive electric vehicles. As the government increases the mandates to higher levels for increasingly more expensive automobiles, cost-push price inflation results. Moreover, favoritism for the Big 3 automakers and electric vehicles may be causing supply-push inflation, since others especially Japanese automakers could produce fuel-efficient and fuel-cell vehicles cheaper, and with higher quality.
Leading Monetarist and Nobel Prize-winning economist Milton Friedman criticized the concept of cost-push inflation: “To each businessman separately it looks as if he has to raise prices because costs have gone up. But … Why did his costs go up? ... The answer is, because ... total demand all over was increasing … the inflation arises from one and only one reason: an increase in a quantity of money." Dallas S. Batten, an economist in the Department Treasury during the Reagan administration, adds: "Though the cost-push argument is appealing on the surface, neither economic theory nor empirical evidence indicates that businesses and labor can cause continually rising prices” … the real cause as "increased aggregate demand resulting from increased money growth."
Richard Vague, Pennsylvania Secretary of Banking and Securities, writes in the 2016 article “Rapid Money Supply Growth Does Not Cause Inflation: Neither do rapid growth in government debt, declining interest rates, or rapid increases in a central bank’s balance sheet” that: "with the massive growth of the money supply in response to the Great Recession, monetary economists and financial commentators have been waiting and waiting and waiting for inflation to appear.” Economist Rick McGahey explains further: “Monetarist theory, which came to dominate economic thinking in the 1980s and the decades that followed, holds that rapid money supply growth is the cause of inflation. The theory, however, fails an actual test of the available evidence. In our review of 47 countries, generally from 1960 forward, we found that more often than not high inflation does not follow rapid money supply growth, and in contrast to this, high inflation has occurred frequently when it has not been preceded by rapid money supply growth."
Monetarists fail to recognize the higher and inflating prices caused by limiting supply, particularly within specific industries. They don’t even recognize cost-push inflation caused by supply shocks. They don’t recognize supply-push inflation caused by government restricting businesses and labor from increasing supply in response to increasing demand. Economy-wide inflation may require monetary expansion, but industry-specific inflation does not. Without monetary expansion, government-favored monopolies in basic industries would first rob spending from non-essential industries and then halt economic growth.
It doesn’t make sense to ignore the supply-push part of the supply side of inflation, and the entire supply side including cost-push. It is also ridiculous to ignore the demand side inflation resulting from changing consumer preferences by focusing only on monetary policy. Blaming only the increased demand resulting from monetary expansion, while ignoring changing consumer preferences and restricted supply, will result in the suppression of economic growth and wealth equality.
Richard Vague adds: “to be fair, conventional monetary economics (and economists) would argue that, all else equal, large increases in the money supply will cause inflation. But we haven’t seen that, even with the Fed’s historic actions, mainly because aggregate demand remains so low after the Great Recession, and because the massive debt accumulations that helped trigger the downturn are taking years to work through. … This leaves unanswered the question of what causes inflation? … generally include such factors as imbalances between supply and demand, including supply shocks on the one hand and private credit-induced demand on the other; currency exchange rates, which can cause the import of inflation; and considerations relating to the politics and political stability of the country."
Note: The author declares no financial conflicts of interest, but does disclose that he worked with sweet sorghum biomass energy many years ago before retirement.