Solutions to U.S. spending and inflation crisis

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In order to solve problems, one must first adequately define the problems. America has a spending problem which has led to a national debt crisis and has unleashed inflation which, if not constrained, destroys the middle class. We have a Congress that "controls the purse," so why can't they control spending by the Executive branch?

The obvious answer is that more than 50% of the VOTERS are reliant on government aid. Neither Republican nor Democrat politicians have any incentive to cut back on this spending.

However, when you run deficits every year you have to borrow money from willing lenders. After the financial crisis of 2008-09, U.S. Treasurys received a credit downgrade for the first time in history—willing lenders disappeared. Enter the Federal Reserve (Fed), who invented QE-1,2,3 to print money and buy (loan) $8 trillion of U.S. Treasury debt and mortgaged back securities from the Treasury, and lowered interest rates to zero. Did Congress give the Fed these vast powers?

In 1971 President Nixon took the dollar off the Gold Standard, thereby making the dollar fiat money. In the 1980s Congress instructed the Fed to seek a goal of 0% inflation. Yet, in the 1990s the Fed invented an arbitrary 2% standard to "keep the economy stable." Since then, we have had an economic crisis in 2001, 2008, and in 2020 Covid-19 where the Fed printed massive amounts of money that created "transitory inflation" that has permanently increased the cost of living by 25% and allowed the government to shut down our economy for two years. We can now see that these vast Fed powers don't make the economy more stable.

Why do we need 2% inflation, which is also called "Central Bank Counterfeiting," as it destroys the value of the dollar — which increases the cost of living, but allows the government to pay off debt with cheaper dollars? Why do we need money printing since it doesn't increase economic growth — it only helps the politicians and their cronies who get the new money first (the "Canitllon Effect")? Why do we need fiat money, which is only paper money not backed by specie, and is only made legal tender by Decree which history has shown "to be unjust and calculated to support fraud and oppression"?

It is now clear that inflation is an intentional monetary policy of the Fed that is driven by politics, not economics. The Fed is the root cause of our spending crisis and inflation. Congress may not have the will to cut welfare spending unless we amend the Constitution under Article V, but they can pass legislation to control the Fed. It is time to substantially reform, if not disband, the Fed.

Steve Gardes is a Certified Public Accountant (CPA) and Certified Valuation Analyst (CVA) with over 40 years of public accounting experience.