The storyline all year from the Federal Reserve and the Treasury was that consumer price inflation was coming down. That it would soon be within the Fed’s arbitrary 2 percent target. That the runaway inflation over the last few years was a mere pothole in the road to greater prosperity.
On September 18, the Fed was so sure it had expelled inflation that it cut the federal funds rate for the first time since March 16, 2020. What’s more, the Fed went big. It cut 50 basis points.
The stock market has made hay in the weeks that have followed. Since September 18, the S&P 500 is up over 220 points, and has hit new all-time highs along the way.
This has pushed stocks to extreme valuations. The Buffett indicator, the ratio of total market capitalization over gross domestic product, is now over 200 percent. A fair market valuation is a ratio between 107 and 131 percent. Anything above 155 percent is considered significantly overvalued.
While the Fed’s rate cuts are thrilling for stock market investors – for now – they’re terrible for working Americans who are struggling to make ends meet. In fact, last week’s CPI report showed the Fed may have jumped the gun.
The headline CPI increased 2.4 percent on an annual basis in September. However, the core measure, which excludes food and energy, increased 3.3 percent. These numbers are well above the Fed’s arbitrary 2 percent target. Moreover, so long as the inflation rate is positive, prices are increasing, and consumers are paying more at the checkout counter.
This is nothing new. The Fed has a long history of getting it wrong when it comes to consumer price inflation. The prejudice for artificially low interest rates clouds its judgement and actions. Sometimes the president must get involved to distract the public from the real culprit.
Public Enemy No. 1
In late-1974, consumer prices were inflating at an annual rate of 11.1 percent. The unemployment rate was 7.2 percent. The misery index, which combines the two, was at 18.3 percent. Workers, savers, and the unemployed, were getting shredded.
On October 8, 1974, in a speech before Congress, President Gerald Ford declared inflation “public enemy number one.” The title of the speech, “Whip Inflation Now”, announced various proposals for private citizens to chip in and do their part to apprehend the inflation foe.
The solutions Ford provided to American citizens were to carpool, turn down the winter thermostat, and grow vegetable gardens. Supporters were encouraged to wear Whip Inflation Now (WIN) buttons to virtue signal their team spirit in the war against inflation.
To obtain a WIN button, all you had to do was fill out a special one-page direct response enlistment form and send it to President Ford. The form read:
“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.”
Why Energy Saver is capitalized while inflation fighter is not, is unclear. But below this statement were several lines for the sender to put their name and address. The form was mailed to the president and the sender would receive a WIN button via mail order.
This, without question, is a shining example of government creativity and ingenuity in action. Yet Ford’s advice for thrifty living may not have been all bad.
Spending less than you make, controlling expenses, and striving for greater self-sufficiency are all worthy goals. However, a government sponsored WIN campaign is entirely patronizing when that same government is rapidly debasing the currency because it cannot get its own act together.
Do As I Say
Remember, consumer price inflation starts with the inflation of the money supply. Deficit spending is a primary means by which the government inflates the money supply. By 1974, a decade of guns and butter spending to finance the Vietnam War abroad and the Great Society at home had resulted in runaway consumer price inflation.
Over this time, Washington had pulled out all the stops to dispose of the mess of its making. In 1965, the U.S. Mint removed silver from quarters for the first time since 1796. Then, in 1971, playing the weak hand he’d been dealt, Nixon closed the gold window and suspended the international convertibility of the dollar to gold.
These deceptive measures would have been avoided had Washington done its job and operated within a balanced budget. Ford’s recommended means and methods for how citizens, having enlisted as inflation fighters and Energy Savers, could combat inflation were nothing more than a demand to ‘do as I say, not as I do.’
Politicians like to pretend that the source of consumer price inflation is a great mystery. This is so they can divert the public’s attention away from their handiwork. In truth, it’s really very simple. Consumer price inflation starts and ends with deficit spending. Fed monetary policy merely accommodates the mega debts and deficits.
If the federal government was really interested in whipping inflation now it would have balanced its budget long ago. But the government is not interested in balancing its budget. Instead, Congress pursues welfare and warfare spending while devaluing the dollar to pay for it.
Whip Inflation Never
Politicians take the consumer price inflation of their own making and use it to score political points with the public. Rather than tackling the real problem and balancing the budget, they blame greedy corporations.
At this point in America’s decay, cutting spending is politically impossible. Over the years, layers and layers of interference by various federal, state, and local agencies have built up like grime on a kitchen window. The grease shines and smells like rotting fish. The layers of government grime also drip and ooze into every crack and crevice of the economy.
Gas prices. Food supply. Reliable energy. Medical billing. Mortgage rates. Currency debasement. DEI initiatives. Computer chips. Excessive taxation. Welfare. Warfare. Ridiculous bike paths. Lobbyists. FEMA relief. Electric vehicles. Open borders. Your children’s classrooms. Retirement insecurity. Bombs in Baghdad and everywhere else. And much, Much, More.
The bloat in government that’s wreaking havoc on the world around you all come back to mega deficit spending. This, in turn, is the same thing that’s devaluing the dollar and driving consumer prices higher.
According to the Congressional Budget Office, the federal budget deficit was $1.8 trillion in fiscal year 2024. This is the third largest deficit ever recorded, coming after the mad coronavirus spending orgies of 2020 and 2021. Furthermore, net outlays for interest on the public debt rose by $240 billion to total $950 billion.
As you can see, interest on Treasury debt is massively blowing out the budget deficit. At the same time, deficit spending is the primary source of consumer price inflation. Thus, radical spending cuts are needed to balance the budget. Paying down the debt demands even greater spending cuts.
Of course, Whip Inflation Now was never the goal of Washington. If it had been, the political class would have cut off the spending and nipped it in the bud long ago.
On the contrary, members of the political class perpetuate inflation because their lifestyles depend on it. Inflation has been very good to them. It pays for their mansion homes, exotic vacations, and their kid’s Ivy League tuition.
Whip Inflation Never is their real mantra. It always has been. For inflation is their way of life. And they’d rather destroy the country than give it up.
[Editor’s note: Have you ever heard of Henry Ford’s dream city of the South? Chances are you haven’t. That’s why I’ve recently published an important special report called, “Utility Payment Wealth – Profit from Henry Ford’s Dream City Business Model.” If discovering how this little-known aspect of American history can make you rich is of interest to you, then I encourage you to pick up a copy. It will cost you less than a penny.]
Sincerely,
MN Gordon
for Economic Prism
