Commentary: Printing our way out of inflation

The stock market continues to convulse, making it about 11 months now since we’ve witnessed some sort of normalcy in the indexes.

The monetary tightening by the Federal Reserve to combat the worst inflation in 40 years is a causation for sure, but in addition to that, the restart of supply lines after the pandemic shutdowns, the unwillingness of many to get back to work after their generous unemployment bonuses and stimulus checks, the Ukraine war and wallet-crushing prices on many of the things people buy have also contributed. Arguably, a perfect storm of bad decisions all came together to slam almost all sides of our global economies.

You might ask, “What bad decisions, Marc?”

Subjectively speaking and in this analyst’s opinion, the shutdowns and the fire hose of unemployment and bailout monies has fostered the red-hot inflation we are witnessing now. The shutdowns need no explanation, and the federal cash giveaways increased the money supply by almost 50 percent from what it was pre-pandemic.

Let’s call it what it is: egregious money printing by the governments of the world, similar to the Mexican peso event that decimated that currency decades ago. There have been many other overspending governments throughout history of course, but the Mexican peso event seems to strike a familiar chord in the minds of most. Copious amounts of money printing was Mexico’s problem way back when, and it’s the same problem most governments of the world, including the U.S., seem to be coping with now.

The central banks of the world are trying to bring down inflation by tightening down on credit and the money supply of their respective economies.

Ironically (and in my opinion, idiotically), governments are continuing to spend even more money to try and cope with the inflationary problems caused by previous spending.

In the last six months alone, Washington has doled out another $5 trillion or so on everything from giving money to for-profit semi-conductor companies, to pushing for more green solutions in the midst of an energy shortage, climate change, massive government hiring, more bank bailouts, foreign assistance and more. You name it, Washington wants to throw money at it.

I’m not pointing a figure at any one party, administration or sovereign government mind you, as they have all overspent for decades. But it was only a matter of time before all that money starting bidding up the prices of everything under the sun. And it has.

Here in the U.S., the government continues to think of new ways to fire up the printing presses. The coming November elections and the presidential election, which should start in late 2023, makes the temptation to continue to put ink to paper in the form of newly created dollars to shower down on potential voters irresistible.

Meanwhile, Federal Reserve Chief Jerome Powell must be pulling his hair out. As the Federal Reserve tries and sop up some of those pandemic trillions to tame inflation, 16 states are handing out even more money to help citizens cope with inflation: California, Colorado, Delaware, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Maine, Massachusetts, New Jersey, New Mexico, Oregon, South Carolina and Virginia.

Apparently, at least that many state governments don’t see the irony in handing out free money to counteract the very inflation caused by handing out free money. My opinion of course, and I’m sure I’ll get at least a few nasty letters for that one.

Such is the life of a public columnist.

In conclusion, once we look past the previous mistakes of the Federal Reserve in their failure to recognize our inflation early on, when it would have been much easier and far less painful to tame, we at least have to give them credit for holding a firm line continuing to withdraw money and credit from the system despite a crashing market and slowing economy.

Not only does the Federal Reserve feel the pressure to solve our inflationary problem, they are very soon likely to feel even more pressure from Washington to relent and stop tightening the screws on the consumer. In a box of their own making, they are now damned if they do and damned if they don’t.

Since the federal and state governments continue to hand out cash, however, I doubt the Feds will be able to accomplish their mission and may even “break something” in the process.

You heard it here first: Inflation is probably not going away anytime soon.

This article expresses the opinion of Marc Cuniberti and is not meant as investment advice, or a recommendation to buy or sell any securities, nor represents the opinion of any bank, investment firm or RIA, nor this media outlet, its staff, members or underwriters. Mr. Cuniberti holds a B.A. in Economics with honors, 1979, SDSU, and California Insurance License #0L34249. His website is moneymanagementradio.com and was recently voted Best Financial Advisor in Nevada County. 530-559-1214.