The source of economic misery
The Federal Reserve’s decision to increase rates rapidly is a decision to crush private enterprise, not improve the dollar. High rates will bludgeon the private economy into recession but will not improve the purchasing power of the dollar.
As founder of a commercial bank, and as one who appreciates the Austrian School of Economics, I must respectfully argue one point in current FedThink. Dollar devaluation, and price inflation, won’t easily be tamed by high interest rates — not without tremendous economic pain. There is a better way.
Inflation could more easily be reduced, and the purchasing power of the dollar restored (these are identical), when two things happen simultaneously: the Federal Reserve engages in serious reduction in the supply of money, called Q.T. (Quantitative Tightening), and thereby forces Congress to stop spending; stop the debt spiral; and, most important, pay off debt.
Q.T. means reducing the supply of money in our economy. Excess money supply is the source of inflation: it devalues the buying power of every other dollar. When we spend 50% more for the same tank of gas than we did three years ago, we call it inflation or devaluation in the dollar.
In order to stop inflation, go to the source, which is excess money supply. The excess was created so that Congress could spend it and thereby exert control over the citizen. In what alternate universe can anything indefinitely spend more than it takes in? There is an endpoint. Like the rest of us, our own government has got to stop putting our nation and every citizen into debt.
Excessive government spending is a source of control because federal spending and its resultant debt deplete private economic activity. Federal spending creates citizens who are dependent on their government. Spending transfers decisions out of the hands of citizens into the government. Worse, it transfers capital out of the owners’ (our) hands into the government’s (citizens pay for this debt). That was not the intent at our founding, or as recorded in the founding documents. The government was to act only to protect the inalienable rights of each citizen, not control the citizens and certainly not spend them into serfdom.
Consider: did we agree to be placed into $8 trillion of debt? Nope, but the Federal Reserve and Treasury Department made that decision for us when they printed 8 trillion U.S. dollars (and bought Treasury Bonds) starting in 2008. We and our progeny will pay back that debt for decades.
We must equate excess money supply with inflation; one leads to the other. Consequently, equate excess money supply with debt, whose source is federal spending. Reduce one by reducing the other.
Bottom line: Federal spending and debt are finite. They can’t go on forever. There will be a reckoning. We have the opportunity to avoid the catastrophic consequences of past federal action if we act now to demand significant reductions in spending, debt, and regulation.
Jay Davidson is founder and CEO of a commercial bank. He is a student of the Austrian School of Economics and a dedicated capitalist. He believes there is a direct connection joining individual right and responsibility, our Constitution, capitalism, and the intent of our Creator.
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