Not Everything Trump Does is Bad. Fighting the Inflation?

President Trump's deportations of illegal immigrants may sometimes violate existing laws, but at least their purpose is clear and many Americans support it. Mr. Trump says that he “was elected to get them (the illegal immigrants – I.C.) the hell out of here,” but the courts are holding him from doing it.
The fight against the “Deep State” represented by the courts continues.

As for inflation, the associated depreciation of the US dollar and the rise of prices in the country, few people really understand what they are, where they come from and what can be done about all that, despite the fact that volumes have been written on the subject. The impression is that those who understand the essence of inflation are silent about it, and those who do not, present inflation as a force majeure that nothing can be done about. The latter includes, for example, former President J. Biden who blamed coronavirus pandemic and war in Ukraine for inflation in the US in 2022.

For decades, different US governments have been fighting corruption and inflation, and didn’t defeat any of them while the people watched the fight with hope and kept voting for the next fighters from the two major parties. The blind lead the blind and nobody can solve the problems. This can go on very long.

I wrote several articles on the topic of inflation and it’s a pity that very few people read them. Everything is explained there quite clearly.

The rise of prices, apparent inflation and depreciation of money.

People usually understand inflation as something that makes goods and services more expensive and do not look deeper. Some call any increase in prices “inflation.” In fact, people are not so much worried about inflation and depreciation of money (they have no time to figure that out), but they really pay attention to the rise of prices - something they can clearly see in the stores. Economists also often confuse all these concepts consciously or not, and politicians repeat the erroneous conclusions after them.

For example, Investopedia defines the inflation now as “… a gradual loss of purchasing power that is reflected in a broad rise in prices for goods and services over time.”
Couple of years ago Investopedia’s definition was “… a decrease in the purchasing power of money, reflected in a general increase in the prices of goods and services in an economy,” so it changed a little.

Wikipedia states now that inflation is “… an increase in the average price of goods and services in terms of money.” In 2022 it defined the inflation as “… an increase in the general price level of goods and services in an economy.”

From my point of view, all the definitions above are about depreciation of money which is a consequence of the inflation and not about the inflation itself. Sometimes prices increase because of the inflation, and sometimes they don’t. Besides, the definitions above sound like the inflation happens on its own. No. It is a man-made phenomena.

The US federal government is living on credit and Mr. Trump wants to increase governmental revenues and reduce spending. That's correct, but it can be done in different ways.
For example, Mr. Trump's new import tariffs have already raised prices in stores, as retailers do not want to reduce their profits (which may already be small) and are forced to increase the price of goods for customers. I recently bought a printer cartridge for $3 more than I had paid two months ago. So, Mr. Trump took $3 more from me, and maybe he got also something from the Chinese manufacturer of these cartridges. This is an example of rising prices because of Mr. Trump's experiments with import tariffs, and inflation has nothing to do with that.

The rise of prices may also be caused by shortage of goods due to production or delivery problems, like it happened during coronavirus pandemic. If the goods are in short supply (like paper towels and cleaning products in the US in spring of 2020), people are willing to overpay for what they need, and retailers usually immediately raise the prices of these goods. After many economists I called this an "inflation," too, but “apparent” one which is not “inflation” at all, it’s just rise of the prices because of the shortage of supply. It is the “inflation” almost all economists and politicians complain about, since everything can be attributed to unfavorable circumstances and there is nobody to blame personally.

Real or “hidden” inflation.

I am not an economist, but I have my own definition of the inflation: it is “an increase in money supply in the economy.” It is made by the central banks.

There is a constant slow increase in prices for goods (not only those in short supply, but any) and services in many countries, which is a consequence of the depreciation of the national currencies because of the inflation which I called “hidden” one in my articles. This is the result of the deliberate inflation targeting policy of central banks which is based on economic theory J. M. Keynes. Its essence is the artificial creation of additional demand in the country's economy mainly by issuing loans to people and businesses (there are other options - bail-outs of financial institutions or Quantitative easing during financial crises).

It is assumed that people will use these loans to start their own businesses which create some jobs, and existing businesses will expand and also hire employees. Thus, such a policy of central banks helps to increase employment and reduce unemployment in the country.
Elites of any country are very much afraid of high unemployment rate because hungry and angry people can re-elect them or, God forbid, start a revolution. Apparently, this explains the popularity of Mr. Keynes's theory among governments of different countries and leading economists. They represent "Keynesian economic school."

The bad thing here is that the loans issued (as well as money for bail-outs or Quantitative easing) are taken “out of thin air.” Central banks just create them out of nowhere in their computers. It's easy because everyone now uses fiat electronic money and there is no need to print it to give someone a loan. Money is just numbers in the computers of the banking system, and if you take a loan, your numbers in the credit account will increase, and “empty” additional money which is backed by nothing enters the country’s money circulation. I once called it “surrogate money.” Governments constantly manipulate money in their countries in that way and are able to easily devalue it (and do so constantly) or even abolish it at any time. They cannot devalue only decentralized cryptocurrencies like Bitcoin which was specifically created for this purpose.

So, after receiving a loan people can start a new business, but more often they buy shares, for example, the demand for these shares increases and their price rises. If many people start buying anything in this way - cars/ real estate/ gold/ cryptocurrency - all this will increase in price, and a bubble of unrealistic prices for these goods is being inflated on the market. In such way the country's central bank (the Fed in the US) injects the “surrogate money” into circulation to artificially create increased demand, following Mr. Keynes's theory. This is real “inflation” of the money supply, literal pumping up the national currency with "pure air" which is constantly arranged in the US by the Fed.
For example: between December 2019 and August 2021, the US money supply, measured by M2, grew by $5.5 trillion, a 35.7% increase in only a year and a half. That time the Fed did that not in the form of loans. It bought up government Treasury bonds and mortgage-backed securities, having created money for this again out of nothing. Therefore, it is not surprising that this was followed by the inflation surge which the Fed is still trying to tame and a subsequent rise of prices in the country. It could not have been otherwise.

You can see how the money supply in the US has grown over the past 65 years here. This is not a secret information, but almost no one knows what is it for. In fact, it is a relative indicator of the inflation.

At some point, the rush demand for some product falls and the inflated price bubble bursts. This means that everyone rushes to sell this product, its price falls and the last ones who bought it had lost their money. If there are many such people, there will be panic in the financial market which may lead to the collapse of the entire financial system.

That’s why the central banks try not to issue “surrogate money” more than 2% of the amount in circulation in the country per year. This is the standard inflation targeting policy in the world. Sometimes the banks follow it, sometimes they cannot, but the main thing is that money in almost all countries is being constantly depreciated (which means that the population is getting poorer) with the speed of at least 2% per year. It seems not like much, but such inflation will reduce your savings by 1.02¹⁹ = 1.45 times over 20 years. This is considered “normal”, and such economy is called "Keynesian" one.

I called this inflation “hidden” one because it is not obvious: additional money emission is not regulated by laws, but is left at the discretion of the central banks. The Fed does not really hide its inflationary economic policy and the Americans are simply not interested in understanding it. This is bad, because with the help of this instrument, the Fed (and, therefore, the US elites) constantly devalue the US dollar more or less and impoverish the people.
This vicious (from my point of view) practice has taken root in many countries.

The economy and Federal Funds Rate.

The Fed can also speed up or slow down economic activity in the country using the Federal Funds Rate (FFR). This is the price commercial banks pay to use the Fed's money.
The Fed raises the FFR and the loans become more expensive (as they are now— 4.33% a year) and thus are rarely used, or the Fed lowers the FFR, the loans become cheaper and are actively used. Often these experiments lead to economic crises, such as US banking crisis 1980-1995 or the US financial crisis of 2007-2008, which plunged the world in Great Recession.

Thus, the elites of many countries manipulate the money of their people through artificially created inflation, interest rates of “independent” central banks, using the economic theory of Mr. Keynes. All this together is called the “monetary policy.” It usually leads to the impoverishment of the people, the enrichment of the elites and the division of nations into a rich minority and a poor majority, as it happened in many so-called “developed countries” of the world.

Mr. Trump vowed to end inflation “on Day 1” of his presidency (just like stopping the war in Ukraine).
Do you think it is possible? Do you think he understands that inflation is created by the Fed? Do you think Mr. Trump sees that the Fed's inflation targeting policy impoverishes American people and splits the nation? Do you think he is really going to end this evil practice? Do you think he is really for the people and against his billionaire friends?

I don’t think so.

Mr. Trump is not fighting inflation, but the Fed chair. It is easier.

Mr. Trump recently started a small war with the Fed chairman J. Powell. Formally, the Federal Reserve is an independent institution and this is considered a prerequisite for the “correct” functioning of the US financial system.
J. Powell is reluctant to lower the FFR because of concerns about rising inflation, which means borrowing is expensive now. Mr. Trump, on the contrary, wants speculators and investors to take out loans and buy American stocks, Treasury bonds, etc., and therefore he insists on lowering the FFR. Mr. Trump even called for Mr. Powell’s “termination” for not cutting interest rates quickly, but later he changed his anger to mercy and promised not to remove the Fed chair. In fact, he couldn’t do that anyway without the US Congress.
Thus, Mr. Trump’s fight with the “Deep State” represented by the Federal Reserve continues, the head of the Federal Reserve holds his line, and the people, as usual, watch the dispute without understanding the issue.

Is it necessary to lower the Federal Funds Rate? Yes. And no.

Mr. Trump, I think, hardly understands a half of what I explained above about artificially created inflation and the Fed's games with FFR. He simply does not need that. However, he seeks total control over government revenues and expenditures and feels he should influence the Fed's decision-making. This is basically correct (even though the Fed is supposed to be “independent”) given that the Fed creates inflation in the US and is the world’s main counterfeiter.
Mr. Trump also wants to immediately lower the FFR so that speculators and investors can borrow again and start buying US financial instruments after the recent decline in the US stock and debt markets, as well as the US currency, caused by panic after Mr. Trump’s announcement of the new import tariffs.
The FFR cutting will certainly revive the markets and increase the US dollar exchange rate... But this is wrong, because it will inflate financial bubbles in these markets and spur inflation.

Mr. Powell may understand inflation and its role in keeping unemployment low in the country (though I don't think a central bank should be involved in such matters), but then he doesn't see that the side effect of his inflation targeting policy is that Americans are getting poorer. Or Mr. Powell sees that and keeps quiet about it.
If Mr. Powell lowers the FFR at Mr. Trump's insistence, inflation will increase, the FFR will have to be urgently raised again, and the economy may go into recession. If the FFR is not lowered, the vindictive and rancorous Mr. Trump will be unhappy. The Fed Chairman has a very stressful job now.

By comparison, Mr. Biden hasn’t contradicted the Fed at all despite he seemingly fought inflation. In 2021, he kept Mr. Powell in office for a second term and even praised him for “decisive” leadership during the Covid crisis. Mr. Biden also made no attempts to understand the Fed's inflation targeting policy and relied entirely on the opinions of his financial advisers and the Fed officials.

That is why there is no need to answer the question “Is it necessary to lower the Federal Funds Rate?” Once your head's cut off, no sense in crying about your hair. We live in a failed economy, in which the central bank creates inflation and economic crises, governments incur debts, and the ignorant people continue to elect incompetent authorities. “The blind lead the blind” – this, unfortunately, is about today's America and many other countries, too.

Unattainable ideal.

In March 2023 I published an article “Who is to blame for the banks' failure?” and there was a phrase there that the Fed has been created to maintain “the stability of the financial system” and “stable prices, including prevention of either inflation or deflation.” I took this phrase from the Wikipedia article about the Federal Reserve then.

I re-read this article of mine half a year later, followed the link to the original Wikipedia article and found another wording there: the Fed’s duty changed to maintaining “… stable prices, interpreted as an inflation rate of 2 percent per year on average».

There was not a word about “prevention of either inflation or deflation” in the new edition, but this should be the main task of any central bank from my point of view - ensuring stable prices and thus not letting the population get impoverished. This is where the independence of the Federal Reserve from all branches of government is really needed. And such independence formally existed, but the declared earlier task of “stable prices, including prevention of either inflation or deflation” failed. So, someone at the Fed apparently saw the discrepancy and changed the wording to more convenient one around mid-2023.

What does Mr. Trump need to do if he truly wants to fulfill the will of his voters and curb inflation?

He should fight not J. Powell, but the harmful inflation targeting policy of the Federal Reserve. Yes, this means going against the principles of Keynesian economics accepted throughout the world. It is because of it the world debt is constantly growing and has reached $315 trillion in 2024.
I once wrote here: “To curb inflation, Americans (or Mr. Trump) must force the Fed and its current chair J. Powell to stop issuing superfluous dollars into the US economy.”
Yes, it's that simple. And then it’s needed to somehow force the Fed to fulfill its main task - “to maintain the stability of the financial system and stable prices, including prevention of either inflation or deflation.”

If Mr. Powell refuses, Mr. Trump should invite someone from the Austrian school of economics of Ludwig von Mises to head the Fed. I wrote a little about this school, too. Ludwig von Mises' followers understand inflation correctly and are not far away: 518 West Magnolia Avenue, Auburn, Alabama 36832-4571, phone 334-321-2100.
In that article I already gave this advice to Mr. Biden, but he did not use it. I feel that Mr. Trump will not use it either which means that inflation and prices in the US will rise. And Mr. Trump will, of course, come up with an excuse to justify himself, especially since the ignorant people see the rise in prices, but do not relate it to inflation and the Fed's targeted work of impoverishing the people.

What should the Americans do to stop rising of prices?

1. They should understand the essence of inflation and the role of the Federal Reserve (and the US elites in general) in the country. (Unfortunately, this is where everything stops. The Americans do not have time or desire to ponder over that).
2. They should push revolutionary Mr. Trump to force the Fed to stop issuing surrogate dollars into the US economy and “to maintain the stability of the financial system and stable prices, including prevention of either inflation or deflation,” rather than maintaining 2% inflation.
3. They should constantly control the execution of their will with threats not to vote for the Republicans in the next elections.
4. They should repeat the same thing with the next president (if any) and all Congressmen until the desired effect is achieved.
5. They should not vote for Republicans or Democrats if they do not carry out the will of the people.

Yes, democracy is a slow process, which nevertheless depends heavily on the awareness of voters. In the case of inflation and rising prices, it is almost endless since the blind lead the blind. Someone has to see the light, otherwise all will fall into a pit.