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Inflation has impacted all of us. The price of almost everything has spiked faster and harder than at any time since the 80s. Few things can obliterate a modern economy more than out-of-control inflation. The Fed has tried to contain inflation by aggressively raising interest rates. The sharp rise in interest rates has, among other things, brought the housing market to almost a complete halt as affordability has made it far more difficult for the typical family to afford a home. Of course, Americans don’t seem to have the ability to rally around crisis anymore, instead, we prefer to play the blame game. Conservatives blame Biden’s economic policies for inflation and progressives point to the record deficits accumulated during the Trump administration.
There are a number of factors that cause inflation. International supply chain issues, a scarcity of raw materials, and a tight labor market all can play a role, but government spending and a sharp increase in our money supply are the primary culprits. When you increase the amount of money in the system, the value of the dollar goes down. It’s basic math. The COVID-19 pandemic caused more disruption in our economy than anything we have seen in more than a century. I know there are a million arguments about whether we reacted appropriately to the pandemic. Some think we didn’t do enough and others think we overreacted, but the fact is more than a million Americans lost their lives to COVID-19, and for all we knew at the time, it could have been 10 million. I honestly think most politicians and business leaders did the best they could with the information they had. During the pandemic, unemployment reached 13% – the highest since the Great Depression. The Trump administration, not wanting to see millions of people hungry and tossed out of their homes, quickly implemented several programs including PPP loans for small businesses, foreclosure and eviction moratoriums, and they literally gave free money to a hundred million citizens – remember Donnie Dollars? These programs injected, not billions, but trillions of dollars into our system. When Biden took office, he picked up where the previous administration left off and passed an enormous infrastructure bill that added even more money into the system to stimulate an economy that was still reeling from COVID-19.
There is little doubt that the unprecedented amount of economic stimulus we deployed between 2020 and 2022 is the primary reason why inflation is what it is today, but what choice did we have? What was the alternative? The government must have considered the potential consequences of so much new money in the system, but clearly, they believed that it was better to err on the side of caution. You can argue that both administrations did too much. However, if the current and previous administrations had done too little rather than too much to keep the economy afloat, the suffering in this country, and around the world, could have been exponentially worse. In fact, it’s not a stretch to say that it could have made the Great Depression look like a mere speed bump.
For the first time in a while, experts are talking about a soft landing. Inflation has decreased for nine consecutive months, and the Fed is starting to consider a shift in its policies on interest rates. I don’t think we are out of the woods yet, but things are definitely looking better. It has become the American way to point the finger rather than argue for solutions, but I am going to stay on the sidelines this time. If we all had to pay an economic price in the form of higher inflation to prevent tens of millions of mostly poor people from being tossed to the street, I’m ok with that. America did what it had to do.