• Charlie Gaddis

Inflation

Inflation is the economy’s reaction to imbalance, much like how your body reacts to an infection with a fever. There are some important distinctions. Unlike a f

ever that occurs quickly after infection, inflation will occur months if not years after bad policy creates the imbalance. The delay in the feedback loop encourages more and more bad policies and spending.


Also, unlike a fever caused by one virus or bacteria, inflation can be caused by bad monetary policy and be significantly elevated by bad fiscal policy or vice-versa.


Thus we see inflation and probably facing a recession. Managing a Black Swan (unforeseeable) such as COVID is challenging. Let us take a look at our fiscal policy. Which Trillion dollar spending package tipped the scale? Just in case you lost track, here is what was spent, President Trump authorized Preparedness (3/2020) – 8B, Family First (3/2020) - 19B, Corona Aid+Relief (3/2020)– 2.2T, PPP (4/2020) 483B, PPP2 (6/2020) 470B, Appropriation (12/2020) 600B. President Biden passed the American Rescue plan (3/2021) 1.9T, infrastructure 1.2T (proposed 3.0T), proposed but did not pass, Build Back Better – 5.0T less 2.4T in tax increases. America has spent 7.0Trillion fighting the Black Swan event, known as COVID.


If you are a fan of Keynesian Economics, the Government can and should spend a massive amount of money correcting a deep economic contraction. I am not a fan of Keynesian Economics because we, in the United States, have abused the theory to justify perpetual deficit spending. Keynes, himself, never supported this. However, COVID was a perfect justification for heavy government spending. Unfortunately, we have overdone it. It is hard to say which Trillion tipped the scale, but it has been tipped.



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