And still the money supply = inflation myth survives

You see it all the time. Even my friends at Modern Monetary Theory (MMT) believe it: Inflation is caused by too much money in the economy. It must be correct intuitively, because the myth persists. For instance:

Business Insider

Inflation could spike to 20% in the next few years as the US money supply explodes, says Wharton professor Jeremy Siegel

[email protected] (Will Daniel)

Wharton professor Jeremy Siegel said inflation could spike to 20% in the next two or three years due to “unprecedented” fiscal and monetary stimulus and an explosion of the US money supply.

“I’m predicting here that over the next two, three years, we could easily have 20% inflation with this increase in the money supply,” Siegel said in a recent interview with CNBC.

Siegel went on to criticize Fed chair Jerome Powell for not acting to quell inflation in the near term.

The Wharton professor called Powell the “most dovish chairman” that he’s ever seen and said that the Fed chair’s stance could “be a problem down the road.”

Fiscal stimulus adds growth dollars to the economy via increased government spending and/or lowering of taxes. In short, it’s increased deficit spending.

The purpose is to increase economic growth and employment via increases in the money supply.

Fiscal stimulus is done by Congress and the President. It has nothing to do with the Fed.

Monetary stimulus is done by the Fed. It also adds growth dollars to the economy, along with reduced interest rates.

Professor Siegel does not criticize the federal government for its fiscal stimulus (deficit spending) that has added much-needed dollars to the economy and has pulled us out of the COVID recession.

He criticizes the Fed for adding much-needed dollars to the economy, while keeping interest rates low, which he believes will increase economic growth and employment.

Siegel likes the government putting its foot on the gas, but wants the Fed to undo what the government does by putting its foot on the brakes.

Only in the “science” of economics does that make sense.

In the meantime, Siegel said he is bullish on stocks because fiscal and monetary support is going to keep flowing in.

Being “bullish on stocks” means he believes businesses will be more profitable and the economy will grow, because of the increased money supply.

Siegel noted that the total money supply in the US has gone up almost 30% since the start of the year alone.

But at the same time, he equates growth with inflation.

“That money is not going to disappear. That money is going to find its way into spending and higher prices,” Siegel said.

“The unprecedented monetary expansion, the unprecedented fiscal support, you know, I think excessive, was first going to flow into the financial markets, into the stock market, and then once we’re reopening, and we’re right at that cusp, it was going to explode into inflation,” he added.

Though Siegel claims the fiscal support is “excessive,” he doesn’t say what level of support would not be excessive. And he expects the Fed to cure the excessiveness by undoing what Congress and the President are doing.

His use of the term “explode” reminds us of the claim that the growth of the federal debt is a “ticking time bomb,” a claim that has been made by thousands of “experts” for more than 80 years. That bomb has yet to explode.

In Summary Siegel agrees that adding dollars to the economy grows the economy at a time when the economy suffers from recession.

But he predicts that growth will come at a cost: Inflation. And though inflation currently is low, Siegel believes the Fed immediately should begin to fight inflation by undoing what the Congress and the President are doing.

He wants the Fed to cut the flow of dollars to the economy and to raise interest rates.

Professor Siegel is wrong on all counts.

Inflation is not caused by “excessive” money supply.

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Inflation is caused by shortages of key goods, most often food and/or energy. Inflation actually can be cured by increased government spending to acquire the scarce goods and to distribute them to the populace.

…………………………………………………………………………

Rodger Malcolm Mitchell

[ Monetary Sovereignty, Twitter: @rodgermitchell, Search: #monetarysovereignty Facebook: Rodger Malcolm Mitchell ]

THE SOLE PURPOSE OF GOVERNMENT IS TO IMPROVE AND PROTECT THE LIVES OF THE PEOPLE. The most important problems in economics involve:

• Monetary Sovereignty describes money creation and destruction.
• Gap Psychology describes the common desire to distance oneself from those “below” in any socio-economic ranking, and to come nearer those “above.” The socio-economic distance is referred to as “The Gap.”

Wide Gaps negatively affect poverty, health and longevity, education, housing, law and crime, war, leadership, ownership, bigotry, supply and demand, taxation, GDP, international relations, scientific advancement, the environment, human motivation and well-being, and virtually every other issue in economics. Implementation of Monetary Sovereignty and The Ten Steps To Prosperity can grow the economy and narrow the Gaps: Ten Steps To Prosperity:

1. Eliminate FICA
2. Federally funded Medicare — parts A, B & D, plus long-term care — for everyone
3. Social Security for all
4. Free education (including post-grad) for everyone
5. Salary for attending school
6. Eliminate federal taxes on business
7. Increase the standard income tax deduction, annually.
8. Tax the very rich (the “.1%”) more, with higher progressive tax rates on all forms of income.
9. Federal ownership of all banks
10. Increase federal spending on the myriad initiatives that benefit America’s 99.9% 

The Ten Steps will grow the economy and narrow the income/wealth/power Gap between the rich and the rest.

MONETARY SOVEREIGNTY