In today’s economic climate, Federal Reserve Chair Jay Powell is eager to see a rapid decrease in consumer price inflation. However, his wishes are not being fulfilled.
As reported by the Bureau of Labor Statistics, consumer price inflation, tracked by the consumer price index (CPI), soared to an “official” annualized rate of 8.3 percent in August.
This figure surpassed Wall Street’s expectations of 8.1 percent and shattered investor hopes for an impending ‘Powell pivot.’ In response, the Dow Jones Industrial Average (DJIA) plummeted by 1,276 points following the announcement.
Powell aims for consumer price inflation to hover around 2 percent. Instead, he is faced with a rate that exceeds 400 percent of his target. What is driving this disparity?
To grasp the phenomenon of rampant consumer price inflation and the Federal Reserve’s monetary policies, one must recognize a critical truth: currently, in the United States and much of the world, we operate under a flawed currency controlled by central planners. Karl Marx conceptualized this in the fifth plank of his Communist Manifesto:
“No. 5. Centralization of credit in the hands of the state, by means of a national bank with state capital and an exclusive monopoly.”
The Federal Reserve System, established by an act of Congress in 1913, functions as a privately owned ‘national bank’ and maintains a monopoly on legal counterfeiting in the U.S.
Without the Fed’s strategies of mass credit creation, the U.S. government could not have accumulated a staggering $30.8 trillion in national debt. Likewise, the ability to sustain annual trillion-dollar budget deficits over the last decade and a half relies heavily on the Fed’s creation of artificial currency. More than 100 million Americans now depend on government support for their daily needs.
This illustrates the powerful influence of centralized credit.
Cradle to Grave Control
In reality, centralized credit under a central bank inevitably results in inflation of the money supply. This, in turn, triggers both asset price inflation and consumer price inflation in unique and unpredictable manners.
These price disparities are not imperfections of capitalist systems; rather, they are indicators of a manipulated currency governed by central planners. Today’s escalating shortages in energy and food supply can also be traced back to this central planning.
When the government seeks to steer economic activity, it imposes its will to achieve certain redistribution ideals. But what principles guide these endeavors? How is a unified vision cultivated?
Primarily, the government follows principles dictated by a select group of elites, hailing from institutions like Davos and various universities. These ideals cater to the elites and serve political agendas, often at the cost of an increasingly marginalized middle class.
Moreover, these guiding principles help consolidate power over the populace. They foster divisions by benefiting one segment while disadvantaging another. Resentments inevitably grow as new privileges are allocated for political gain.
As time passes, the ideals of government shift considerably, much like an eroding shoreline. Farm subsidies have long been a central tenet, as has the push for social equality through redistribution. Recently, the focus has shifted towards redirecting economic benefits into green energy, often at the expense of conventional fossil fuel providers.
Central planners are opportunistic, seizing on popular movements to expand their control over the economy and influence individual lives from the cradle to the grave.
Their power tends to grow continuously; it rarely ebbs. Eventually, it can extend into every facet of an individual’s existence.
Market Intervention
Today in America, a person’s income and status are heavily influenced by the state’s coercive structures. Individuals can maintain or enhance their status by aligning with organized groups that sway governmental interests in their favor.
For instance, pursuing a career on K Street as a lobbyist often proves more lucrative than starting a local business. Yet, such market interventions—whether into credit sectors or energy markets—are ultimately destructive for the economy. Here’s why:
The economy is a complex, living system, continually evolving and subject to change. Relationships between supply and demand fluctuate constantly. Even in a moderately free market, bakeries manage to avoid bread shortages during wheat crop failures. Instead, prices rise, prompting consumers to adjust their spending behavior.
Centrally planned economies, in contrast, frequently face deep, chronic shortages. Bureaucrats armed with reports and pie charts are poorly equipped to set appropriate prices for essentials like cornmeal and gasoline. The vast array of variables involved simply exceeds their capability to manage effectively.
A certain commodity may have an adequate supply; however, when price regulators impose artificially low prices, consumers tend to overconsume, leading to persistent shortages on store shelves.
Central Planners of the World, Unite!
Throughout history, attempts to dictate the prices of goods, services, and commodities through a central authority have proven to be colossal failures. This reality was starkly demonstrated by the experiences of the centrally planned economies in the former communist Eastern Bloc during the late 20th century.
Without prices determined by market forces through free trade, establishing realistic prices becomes unattainable. A disconnect between production and consumption occurs, leading to extremes of oversupply or scarcity that lead to absurd outcomes.
These planners struggle to find balance, and over time these absurdities become pervasive. For example, in a socialist economy, supermarkets can have long queues of customers with empty shelves. How can this happen?
Currently, European green energy policies have penalized traditional fossil fuel providers. To compensate for this, Europe has become increasingly reliant on natural gas imports from Russia, which, due to political considerations, has recently halted exports just when they are urgently needed.
In response, European central planners are proposing measures such as a windfall profits tax on energy companies and a cap on gas prices. However, artificially capping the price of natural gas—an already scarce resource—will only exacerbate shortages further.
Unfortunately, price controls extend beyond mere goods and commodities. The United States, along with Europe and others, often uses heavy-handed tactics to control credit prices.
Recall that credit, similar to goods or commodities, has a specific price, represented by the interest rate that lenders charge borrowers. Just as controlling the price of commodities is a failure, so too is manipulating credit prices, as done by the Federal Reserve.
This is the underlying reason the economy is contracting while inflation remains officially reported at 8.3 percent. Fed Chair Powell finds himself compelled to raise interest rates amidst a recession.
Ultimately, government intervention consistently yields the same results: inflation, stagnation, dwindling living standards, and widespread social unrest. Perhaps those were the objectives all along.
So, dear readers, let’s recognize the reality: central planners across the globe must unite!
Sincerely,
MN Gordon
for Economic Prism
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