The Federal Reserve is deemed capable of controlling inflation with monetary policy. If the Fed is so good at these things, why are we experiencing inflation today? If the Fed can roll back inflation, does if not stand to reason that they can prevent it from occurring in the first place? When in the past has the Fed rolled back inflation? The only situation ever mentioned is during the early 89s , Chairman Paul Volker raised interest rates to astronomical levels. Taken at face value, it appears that what Volker did, did the trick. Were there other contributing factors? Yes, there were…. and those contributed more than anything Volker did.
During the early 70s, the economy had stagnated. The productivity of labor had stagnated. The economy was at a bottle neck. New technology was not emerging. New money in the economy had no impact. There was in fact too much money chasing too few goods. Production of goods was what was lacking. A central bank can add money to an economy. It can’t issue a directive forcing industry to produce.
As the 80s rolled in, new technology began to emerge. The mobile phone industry was born. Home computers came into vogue. Industries began computerizing. Microsoft took over with a new operating system. The economy began growing by leaps and bounds. With new technology, one unit of labor could then produce more and more in shorter periods of time. These were all deflationary forces. This had more to do with containing inflation than anything the Federal Reserve did.
What has the Federal Reserve been doing in the recent past? It has been carrying out political agendas on behalf of interests with massive wealth and political power. Massive increases in the money supply have been used to make sure natural deflationary forces did not lower the overall price level. The effect was to keep profit margins high. Labor lost its natural productivity bonus. Financial markets were elevated. The rich got rich and the poor got poorer. Eventually we got to where we are today. There is so much political money in the economy that it can no longer carry out the political goals it is presented with.
The agenda has now changed. Inflation has been created as a means of allowing the rich to keep what they have. More so, Inflation buries the debt of all who have over – borrowed. Nowadays, Fed dialog with respect to halting inflation is strictly for the consumption of the overall population.