In recent months, the Federal Reserve and the Treasury have confidently claimed that consumer price inflation is subsiding and will soon align with the Fed’s target of 2 percent. This narrative suggested that the inflation surge experienced over the past few years was merely a fleeting bump on the path to increased prosperity.
On September 18, the Fed demonstrated its belief that it had successfully tamed inflation by cutting the federal funds rate for the first time since March 16, 2020. Notably, the Fed took decisive action, implementing a 50 basis point cut.
In the weeks following this announcement, the stock market soared. Since September 18, the S&P 500 index has climbed by over 220 points, reaching new all-time highs along the way.
This rally has led to stocks becoming severely overvalued. The Buffett indicator—the ratio of total market capitalization to gross domestic product—has now surpassed 200 percent. A fair market valuation typically falls within a range of 107 to 131 percent, and anything above 155 percent signifies excessive overvaluation.
While these rate cuts may delight stock market investors, they are detrimental to working-class Americans struggling to make ends meet. Last week’s CPI report suggests that the Fed may have acted prematurely.
The headline Consumer Price Index (CPI) rose by 2.4 percent year-over-year in September, while the core measure, excluding food and energy, increased by 3.3 percent. Both figures significantly exceed the Fed’s 2 percent target, indicating that prices continue to rise at the checkout counter.
This scenario is not unprecedented. The Fed has a history of miscalculating consumer price inflation, often swayed by a preference for maintaining artificially low-interest rates. At times, even the president has intervened to divert public attention from the true source of the issue.
The Public Enemy No. 1
In late 1974, inflation was soaring at an annual rate of 11.1 percent, coupled with an unemployment rate of 7.2 percent, resulting in a misery index of 18.3 percent. Workers, savers, and the unemployed felt the brunt of these economic struggles.
On October 8, 1974, during a Congressional address, President Gerald Ford designated inflation as “public enemy number one.” His speech, titled “Whip Inflation Now”, proposed a variety of actions for citizens to contribute to the battle against inflation.
Ford’s suggestions included carpooling, lowering thermostats in winter, and planting vegetable gardens. Supporters were invited to wear Whip Inflation Now (WIN) buttons to show their commitment to fighting inflation.
To obtain a WIN button, citizens simply needed to fill out a one-page enlistment form and send it to President Ford. The form stated:
“Dear President Ford: I enlist as an inflation fighter and Energy Saver for the duration. I will do the very best I can for America.”
The odd capitalization of “Energy Saver” while “inflation fighter” remains uncapitalized is curious. The form allowed participants to provide their name and address, and they received a WIN button by mail.
This reflects a peculiar blend of governmental creativity and ingenuity. While Ford’s advice on frugality wasn’t entirely misplaced—spending less and embracing self-sufficiency are commendable goals—initiatives like WIN feel patronizing when backed by a government failing to manage its own fiscal responsibilities effectively.
Do As I Say
It’s crucial to remember that consumer price inflation is fundamentally linked to the expansion of the money supply. A significant factor in this inflation is deficit spending by the government. By 1974, a decade marked by excessive spending to support the Vietnam War and domestic welfare programs had set the stage for rampant consumer price inflation.
At that time, the government had resorted to drastic measures to cover up the consequences of its actions. In 1965, the U.S. Mint excluded silver from quarters for the first time since 1796, followed in 1971 by Nixon’s decision to close the gold window, suspending the dollar’s convertibility to gold.
Such deceptive tactics could have been avoided had the government adhered to a balanced budget. Ford’s recommended actions for citizens to combat inflation amounted to a demand for them to ‘do as I say, not as I do.’
Politicians often frame the cause of consumer price inflation as an enigma, diverting public attention from their influence. In reality, the mechanism of inflation is straightforward: it originates and ends with deficit spending, with Federal Reserve monetary policy merely accommodating excessive debt.
If the government genuinely sought to tackle inflation, it would have balanced the budget long ago. However, the focus remains on welfare and warfare spending, which leads to currency devaluation.
Whip Inflation Never
Policymakers have exploited the very inflation they have created to score political points. Rather than addressing the true issue of budget deficits, they prefer to lay blame on corporations.
In today’s socio-economic climate, reducing government spending is politically unpalatable. Over the years, numerous layers of interference by federal, state, and local agencies have accumulated, affecting numerous facets of life, from gas prices to education, all stemming from rampant deficit spending.
Issues such as high gas prices, food supply disruptions, unreliable energy sources, bloated medical bills, mortgage rates, currency devaluation, excessive taxation, and various government initiatives trace back to government overspending.
The Congressional Budget Office has reported that the federal deficit for the fiscal year 2024 is projected to be $1.8 trillion, making it the third largest deficit recorded, following the excessive spending during the pandemic years of 2020 and 2021. Notably, net interest payments on public debt surged by $240 billion, totaling $950 billion.
Clearly, interest payments on Treasury debt are exacerbating the budget deficit, while deficit spending remains the leading cause of consumer price inflation. Addressing this issue will necessitate substantial spending cuts to achieve a balanced budget, not to mention additional cuts to reduce the debt itself.
Ultimately, however, “Whip Inflation Now” was never truly the goal for Washington. If it had been, significant cuts would have been implemented long ago.
In truth, many politicians have benefitted from inflation, which supports their luxurious lifestyles, funding their homes, vacations, and their children’s prestigious education. Their real motto has always been “Whip Inflation Never,” as they prioritize their interests over the well-being of the nation.
[Editor’s Note: Have you heard about Henry Ford’s vision for a Southern dream city? If this interests you, I’ve published a special report titled “Utility Payment Wealth – Profit from Henry Ford’s Dream City Business Model.” To learn how this little-known chapter in American history could potentially lead to wealth, I invite you to get a copy. It’s less than a penny!]
Sincerely,
MN Gordon
for Economic Prism
