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“I am indeed rich, since my income is superior to my expenses, and my expense is equal to my wishes.” — Edward Gibbon
This is the formula for happiness; having more income than you spend even after you purchase what you desire. When you are in the state Edward Gibbon describes, you are happy.
That is what makes inflation so frightening. It eats away at the value of your income as it increases your expenses. During an inflationary spiral, growth in income lags growth in expenses and expenses rise faster than income. Eventually, your expenses become superior to both your income and your wishes.
Anyone under the age of 45 does not remember the last inflationary spiral, the stagflation of the 1970s. They are unlikely to remember why it ended — mainly through jacking interest rates through the roof (up to 18 percent for a fixed, 30-year mortgage) leading to the recession of the early 1980s. I lived through those years as a college student and graduate, starting my career. It stunted growth — and blighted the early years of my work life.
We are going back to that. Inflation will be around through at least the end of 2025, and possibly into 2026. Why? Because the current administration has no stomach for stopping it, and even if replaced, it will take a new administration at least a year — and more likely two — to bring it under control.
The sad part is that it could be stopped, cold, by the end of this year. The cure is not a matter of means. It is a matter of will. Inflation occurs when the money supply grows faster than the economy. One of the most vicious aspects of this inflation is that it is being caused by a shrinking economy. The President had constricted the energy sector. Production has gone down, reducing goods available. He has also increased regulation and oversight, further reducing production in the US. (The baby formula crisis is an example of that.) The supply chain issues are caused, in part, by overregulation of the transportation industry, leading to fewer transportation resources being available and increased cost of operation due to satisfying regulatory demands.
The combination of printing money while reducing production has inflation skyrocketing. If we took the hobbles off the economy, inflation would drop. It would not go away, but it would drop. Sadly, this administration will not do that. There are insufficient opportunities for graft in reducing regulation and allowing production without government oversight.Published in