HILL: ‘Inflation is our friend!’

Dan Aykroyd of “Saturday Night Live” had a memorable spoof of President Jimmy Carter’s anti-inflation speech in 1978, where he was ‘quoted’ as saying:

“Inflation is our friend. In the year 2000, if current trends continue, the average blue-collar annual wage in this country will be $568,000. Think what this inflated world of the future will mean — most Americans will be millionaires. Everyone will feel like a bigshot.

“Wouldn’t you like to own a $4,000 suit, and smoke a $75 cigar, drive a $600,000 car? I know I would!”

That may have sounded funny in 1978 when inflation seemed to be “transitory” to Carter administration officials but their fiscal and monetary policies cascaded out-of-control and erupted into full-scale disaster by 1981 when annual inflation hit 12% and interest rates hit 21%.

Yes, Millennials and anyone under age 50, that indeed happened in the lifetimes of your parents and grandparents. It can happen again to you if we don’t watch out.

The worst part about inflation is that it indiscriminately hits the very people who can least afford to be hit: moderate-to-low income wage-earners, poor people and elderly people who live on fixed incomes.

Higher tax rates don’t affect these people like inflation does, because many of them pay zero income taxes. Higher interest rates don’t affect these people like inflation does, because they are not financing large investments such as homes or businesses every day.

Rampant rates of inflation drive up the costs of basic human needs: such as food, clothing and home goods. Inflation might as well be tagged, “Tax the poor!”, because it is the most insidious regressive tax ever.

Various officials, from Biden Treasury Secretary Janet Yellen to Federal Reserve Chairman Jerome Powell, say repeatedly that this surge in prices is due to the COVID shutdown and subsequent reopening of the economy, where everything, including labor, is in short supply. Labor, of course, is in short supply due to the extended unemployment benefits pushed by President Biden and Democratic governors.

They say it is “transitory” in nature… but they sure don’t seem very convincing in their statements.

Federal Reserve Chairman Arthur Burns and his successor, G. William Miller, both said inflation in 1978 was “transitory in nature,” but they were not convincing either. It is said Burns poured gasoline on inflation by expanding the money supply, but Miller lit the match.

Inflation exploded right after I graduated from college to 12% per annum. Thanks, Jimmy Carter and his so-called “experts.”

When “every expert” in the financial world agrees on anything, that is the time to get scared. “All the experts” said everything for the foreseeable future was “perfect” as late as July 2001, “with budget surpluses as far as the eye can see” — and then 9/11 literally hit.

Same as in early 2008; Moody’s and every other econometric projection forecast said everything was perfect in the banking system in 2007, only to be proven wrong in 2008-2009. Same thing as in early 2020 — and then COVID-19 hit.

Inflation may indeed be transitory due to technology that keeps driving prices down despite the enormous expansion of the money supply in the last year, $4 trillion in the spring of 2020 alone, almost five times as much as in 2009. Some analysts say that banks are not loaning a lot of reserves, which is what held inflation in check in the aftermath of the 2009 banking system collapse and subsequent money supply explosion.

However, “transitory” in nature inflation may seem to be today to the Biden “experts,” one cumulonimbus thundercloud forming on the horizon is this glaring fact: Out of all the debt issued by the U.S. government this year, very little of it was bought by any foreign government.

Most of it was purchased by the Federal Reserve — the same quasi-government entity that is flooding the world with American dollars. The Fed is expanding their balance sheet with most of the new debt the Biden Administration is revving up.

That is a recipe for disaster. When foreign sovereigns stop buying US debt, that is a telltale sign of something really going wrong.

Inflation is no friend of ours.

By Frank Hill

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