Inflation Reduction Act Won’t Defeat Hidden Inflation

To really curb inflation, Americans must force the Fed to stop issuing
superfluous dollars, but first they must have the desire to deal with all that.



Federal Reserve, Board of Governors. Image by Federalreserve, Public domain via Wikimedia Commons


Dear Americans and citizens of other countries (because inflation is a global problem)!
I know you don't have time to read economic articles because they are complicated, full of obscure terms and even kind of purposely confused.

Yes, that's right. This is the nature of modern science - to present its conclusions as something very complicated for the sole purpose of discouraging anyone from understanding the matter and making them silently pay for the services of this very science. Why do you think all doctors (in different countries!) have such illegible handwriting and the prescriptions they write are in Latin? Yes, to make you embarrassed to show that you understand nothing and silently pay your medical bills.

However, it is possible to understand both medicine and economics. Moreover, it is often even easier for a non-specialist to understand the matter, because a specialist usually sees everything only within the limits of what he has been taught, and is unable to imagine that there is something beyond. It is like explaining to an Englishman the cases in German language - Dativ or Akkusativ. This is beyond his perception. By the way, there are 6 such cases in Russian and 15 in Finnish. Where could these Finns find so many?

I believe that anyone is capable of treating, teaching, and guiding themselves on their own with just common sense, basic education, and observation. The main thing here is to have the desire to understand.

It is the average citizen who needs to deal with the inflation question if they want to understand why "we work more and can afford less," as my 64-year-old neighbor Patrick, who mowed the grass around my house, once said. The elites of any country don't need to figure that out, they're doing fine.
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On August 7, 2022, the U.S. Senate voted for the Inflation Reduction Act due to the tie-breaking vote of Kamala Harris. This is being presented as a big victory of the Democrats (apparently with the goal of improving the position before midterm Congress election in November 2022). I wonder if this is a victory over the Republicans? Over Americans? Over common sense?
Anyway, now the law goes to the House, President Biden signs it immediately and billions of backed with nothing dollars will flow into the US economy, deepening inflation and exacerbating the economic (and thus political) situation in the country.

Inflation Reduction Actenacts historic deficit reduction, lowers energy costs, increases cleaner production and reduces carbon emissions, allows Medicare to negotiate drug prices and caps out-of-pocket costs to $2,000, lowers ACA health care premiums for millions of Americans, makes biggest corporations and ultra-wealthy pay their fair share…

Now the budget deficits and carbon emissions will fall, medicine and energy will be cheaper, big corporations and the rich will finally start paying their fair share… The justice (according to the Democrats) will finally triumph and they win the midterm elections in November 2022 in a landslide...

Everything is great. The only bad thing is that the Inflation Reduction Act is misnamed. It won't reduce the inflation. The act may reduce the budget deficit (which is the right thing in and of itself), may do something to reduce demand (which will lower drug and maybe gasoline prices) and certainly turns the US toward the "cleaner production," but it doesn’t solve the problem of hidden (core) inflation, because of which Americans, as Mr. Biden says “are really, really down”.

The Democratic shaky majority in the country is going to fight the effects without seeing the cause. By the way, the next presidential administration is likely to be Republican, but it will not help Americans either. Republicans will also fight inflation and fail because they do not understand what it is, too. Then the Democrats will try again... Meanwhile, the Americans will listen to the arguments of both parties about why the inflation cannot be curbed. But time goes on, the country's economic problems worsen, Americans become poorer, while their elite grow richer and pretend that everything is going to be all right soon.
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I have already written about inflation a few times in details and did not want to repeat myself. I even called one article “President Biden does not understand the nature of inflation” to get the attention of Americans because they, as Mr. Biden says “are really, really down” because of the inflation. The President, his economic advisers (Nobel laureates!), and the chair of the Fed seem to be “really, really down” also about the inflation, but they can do nothing about it. Well, what can be done about bad weather?

The reputable and respected BBC News confirms: “What can Joe Biden do to fight inflation? There's very little politicians can do. Economists say price caps, which some countries have implemented, only make the underlying problem worse by subsidising demand. They recommend targeted relief for the worst-off instead.

No. To curb inflation, Americans must force the Fed and its current chair J. Powell to stop issuing superfluous dollars into the US economy, but first they must find the desire to understand how all that works.
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The fact is that there are two types of inflation - apparent and hidden ones. Almost all articles of almost all economists and economical conclusions of the politicians in many countries are about apparent inflation. This is due to the fact, that flawed economic model of J. Keynes once was adopted in the world and many countries had gone the way of inflation targeting. Their central banks deliberately issue into circulation superfluous money mostly in the form of loans, trying to get a money supply growth of about 2% per year. In doing so, they artificially create an excess of demand over supply. Someone will borrow this extra money and obviously buy something. This is the essence of the teachings of Mr. Keynes. That is how central banks constantly stimulate demand over supply and create an inflationary spiral by that. If a central bank targets the inflation (even if it's only 2% per year), you are guaranteed to get it. At some point the process gets out of control, as it happened, for example, in 2020 due to the coronavirus outbreak.

This is a quote from a previous article of mine:

Apparent inflation is created by an excess of demand over supply (or a decrease in supply) of some goods and services, i.e. their shortage, in some special circumstances (war, natural disaster, epidemic, speculation, insufficient production).

Hidden inflation is created by central banks by constant growth of money supply because of inflation targeting policy of the state authorities. Economists, the Fed, and government must see both kinds of inflation, but they show only the apparent one to the people.
Why? To avoid responsibility for the fall of the standard of living of their citizens because of the constant depreciation of money caused by permanent inflation. Not surprisingly, Americans consider the inflation as something natural and unpredictable – like natural disaster or capricious weather.

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It is apparent inflation that is blamed for all the problems because it helps to blame nobody. The coronavirus and global logistics disruption in 2020, the US - China tariff war, now the war in Ukraine, gas blackmailing by the Russians are all pushing prices up (+8,5% in July, 2022), because people are willing to overpay for something they need now. Americans should remember how they were unable to buy medical masks, disinfectants, and paper towel rolls for any money in summer of 2020 because of the Chinese production shutdowns and the inability of reserves to meet the sudden rush in demand.
This is apparent inflation at work, and there really is nothing can be done about it because it's God's will. However, there is a hidden inflation also, and Americans pay no attention to it at all, despite it is the main tool for the impoverishment of the nation.

Here I think it is appropriate to give you another example, which I already gave in my previous article:

Imagine that Mr. Biden lowers tariffs on goods from China, gives Americans cheaper medications, the coronavirus disappears, world’s logistics are restored, and the war in Ukraine stops, but the Fed issues $20T more money (or gives out $20T in loans) in addition to around $20T of current money supply. Bread, gasoline, and everything else in the Consumer Price Index, which the inflation is calculated from, will cost about two times more after a while. Why? Because there is twice more money in the circulation, but no more goods and services were added, so everything will cost more.
Isn't that obvious?


The conclusion of the BBC News about the inflation is wrong. The good journalists are simply repeating the erroneous words of the bad scientists: nothing can be done about the inflation. No. You can't do anything about apparent inflation, but you can do something about hidden one. The U.S. central bank (the Fed) must be required to do its job, which is keeping the national currency stable. It has to stop putting superfluous money into circulation and strictly control the process.
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Unfortunately, the issue of inflation is even deeper, because it has to do with modern money. Humans have emasculated their money by switching to fiat money. The money at your bank account is fiat money which is simply a record in a bank computer system. It is very easy to manipulate and, in particular, to put extra money into circulation by simply depositing an amount taken out of thin air into the account of some organization or person. Money is backed with nothing and has become completely virtual. The Fed even doesn’t need to print them now.

Investopedia states:
Fiat money is a government-issued currency that is not backed by a commodity such as gold.
Fiat money gives central banks greater control over the economy because they can control how much money is printed.
Most modern paper currencies, such as the U.S. dollar, are fiat currencies.
One danger of fiat money is that governments can print too much of it, resulting in hyperinflation.

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Have you ever wondered why there are such tough sentences for counterfeiting? It’s because the financial foundation of the state is being undermined, particularly its currency, and this affects all citizens. And who does this? It’s the Fed in the US! It constantly injects more or less unbacked money into the country’s economy.

Money supply is measured by М2 indicator. From March 2020 (M2=16 trillion) to March 2022 (M2=21.7 trillion), the Fed has issued a total of nearly $6 trillion, which devalued all existing in 2020 USD in the world by 37.5%! So inflation (and devaluation) of the national currency is rising and will keep rising, it cannot be otherwise. And the Democrats speak about lowering carbon emission and drug prices... This is the fight against the effects, not the cause.

Thus, the source of hidden inflation and the biggest (and legal!) counterfeiter of the US dollar is Federal Reserve and its current chair J.Powell. The Fed debases US dollar for the US and for the whole world since US dollar is the world's reserve currency. And it is being done with the tacit (conscious or unconscious) consent of all US politicians – both Democrats and Republicans.
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Being a politician in general is very profitable business in any country. Politicians do not create material wealth, but distribute it. And, of course, they don't forget themselves. They just cannot forget themselves. This is what is called corruption, which President Biden has again declared war on since June 3, 2021.

Hidden inflation helps the elite to manipulate the nation's money by imposing an extra tax on Americans which they don't feel.
How?

A great American economist and Nobel Prize winner Milton Friedman has clearly explained the aim of the inflation long ago:
"Inflation is the one form of taxation that can be imposed without legislation."

Thus, Americans are burdened with one more tax they are not aware of, and inflation is a hidden tool of the US elites for siphoning off money out of their pockets. That is why the rich in the US are getting richer and the poor are getting poorer.
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The life goal of any politician and of any political force is to be in the political process as long as possible, not to achieve any specific result. This is why they choose different and often unattainable goals, such as fighting (not winning!) corruption, inflation, big corporations, coronavirus, racism, environmental pollution.... And so they fight during all their political lives for good salaries and various benefits: J. Biden since 1973, M. McConnell since 1984, N. Pelosi since 1987, but corruption and inflation remain intact and are still there.

If the leaders of a country have been fighting corruption and inflation for 40 years and can't win, they are either incompetent, or they don't need that, or both.

It looks like the Americans are playing cards with a cardsharper and are genuinely disappointed to lose every time. Stop consider the cheater as a decent person. The game is rigged and you will never win. You can only understand the rigged rules and stop playing or you have to impose your own rules.
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I have been always amazed by the fact that right now someone on Earth knows the right answer to almost any question. You just have to find that person. It's very hard to do because too many people think they know the right answer and keep answering all the time even when they're not asked.

However, some economists do see the true status quo in the global economy. For example, Professor Antony P. Mueller in his article “Roots of Our Current Inflation: A Deeply Flawed Monetary System” has brilliantly explained the origin of the current spike of inflation, due to which Americans finally noticed what had been accumulating for years:

A state-sponsored fiat currency system with only a partial reserves coverage of the money in circulation allows the commercial banks to put more money into circulation than they hold in cash. By persistently pursuing an antideflationary policy, the central banks have fueled an ongoing credit expansion… Along with an upsurge of price inflation, this policy has also increased the risk of an uncontrolled implosion of the credit markets (I.C.: it is, for example, the bursting of a bubble at the US real estate market in 2006-2007, which led to recession and global financial crisis of 2008). The current outbreak of price inflation does not come by accident or because of external shocks. The foundation for rising prices was laid over a long period of time. As a consequence, another severe financial crisis looms now again on the horizon.”

Bravo.

I like the way the Austrian economic school of Ludwig von Mises thinks. I wonder whether President Biden has heard anything about them. They're right here, quite close, in Alabama…
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President Biden has the same problem as all Americans do. In order to start dealing with something, you need to have a desire. Until then it is easier to put Mr. Powell to manage the process which he sees halfway through. From this point of view, indeed, every nation deserves its rulers. Actually, they are mirrors.
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P.S. Dear Reader! I am very much interested in your opinion on the subject of this article. Please, write a comment or ask a question if you want to clarify something.
Yours,
Igor Chykalov
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