Here is a good article about our current inflation and how it will end - great info from Mises.
The Quick And Dirty On Inflation
The inflation freight train continues to barrel ahead. Not only are consumer prices at historically high levels; producer prices continue to run ahead of CPI, casting some doubt on the “peak inflation” narrative in the mainstream.
Despite the fact that inflation has been running hot for over a year, the mainstream pundits, government officials and central bankers can’t seem to nail down what’s going on. First, they said printing trillions wouldn’t cause inflation. Then they called inflation transitory. They said it was the pandemic. They pointed their fingers at supply chains and “excess demand.” Now they’re blaming Putin.
The problem is the mainstream won’t come to terms with the real underlying cause of rising prices. Mises Institute President Jeff Deist gives a quick and dirty breakdown of the inflation problem.
But what is really happening?
- First, consider the two covid stimulus bills passed by Congress in 2020 and 2021. These pumped more than $5 trillion directly into the economy in the form of payments to government, payments to households, unemployment benefits, employer payroll loans, cash subsides to airlines and countless other industries, and a host of grab-bag earmarks which had nothing to do with covid. This new money injected itself straight into the veins of the daily economy.
- Second, supply chains remain degraded because politicians around the world didn’t think through their lockdown policies. The deeply interconnected global economy does not have an ON/OFF switch. Idle resources and idle workers don’t simply spring to life and produce goods and services on command. But our policy makers have no conception of a structure of production, its temporal elements, or the ravages of malinvestment created by their political decision to shutter businesses.
- Third, covid allowed the Fed to justify yet another spasm of “extraordinary” monetary policies beginning in March 2020. This gave central bankers an easy out, in a sense, because real trouble was already on the horizon back in September 2019. The repo market, which commercial banks use for short-term (overnight) financing of their operations, suddenly seized up and sent rates spiking. These paroxysms embarrassingly forced the Fed to inject billions of dollars into its “standing” (i.e., permanent) repurchase facility and to consider yet another round of QE (asset buying) even after it had promised to shrink its balance sheet, still bloated with the detritus of the 2007 crisis.
All of this happened before any of us had heard of covid. But the obvious question last fall, screaming to be asked, was this: How on earth, after more than a decade of aggressive asset purchases by the Fed (swelling the central bank’s balance sheet from less than $1 trillion in 2007 to more than $4 trillion by 2019), did commercial banks still experience a liquidity crunch? What the hell was the point of all that money?? Only with pain in the form of a necessary corrective recession or depression. Congress must slash spending, the Fed must stop buying assets and stop tampering with interest rates, and existing US debt must be allowed to mature and roll off the Fed’s balance sheet. We should force the US federal government to sell assets, especially land, to pay off Treasury obligations and fund future Social Security and Medicare entitlements. And if necessary, the federal government should be forced to default or apply a haircut to Treasury investors, who, after all, took a risk like any investor.