There was a remarkable statistic in the latest Flow Show report from BofA's Michael Hartnett: according to the CIO's calculations, "the Fed is spending $336 million every 60 minutes buying bonds, while the US federal government is spending $875 million every hour this year", a staggering amount made possible only by the recent merger between the Fed and Treasury which ushered in not only helicopter money but its socialist offshoot, MMT. It's also what so many monetarists argue is behind the recent surge in inflation, because Milton Friedman said best, "inflation is always and everywhere a monetary phenomenon."
Not so according to president Joe BIden, however, who on Monday said he believes the surge in U.S. inflation is temporary and that he has told Federal Reserve Chairman Jerome Powell that he respects the central bank’s independence. But he also emphasized that he wouldn’t interfere with the central bank’s policies:
“As I made clear to Chairman Powell of the Federal Reserve when we met recently, the Fed is independent. It should take whatever steps it deems necessary to support a strong and durable economic recovery.”
Biden said Monday at the White House that recent price increases are “temporary,” in response to loud arguments - not only from Republicans but also the likes of Bank of America and Deutsche Bank and even lifelong democrats such as Larry Summers - that the president’s economic spending plans would cause inflation to spiral out of control.
That said, we wonder if Biden will respect the Fed's "independence" when the Fed stops monetizing every dollar in debt spent by the Treasury to fund the various stimmy programs launched by the Democrats. As for interfering with the central bank's policies, one wonders how Biden would do that: tell Powell to stop monetizing all that debt?
But none of that matters because Biden's speech came at a time when everything - from the covid response, to the wealth effect (i.e., stock markets) - has become purely political. And sure enough, Biden’s speech which was meant to ease nerves that even more inflation is on the way, comes at a critical juncture in the debate over his $4 trillion economic plan. As Bloomberg notes, the bipartisan group authoring a $579 billion infrastructure package is rushing to complete its work before an expected test vote on Wednesday. The deadline is also intended to force Democrats to rally around the $3.5 trillion budget blueprint that contains many of the president’s social spending priorities.
“If your primary concern right now is inflation, you should be even more enthusiastic about this plan,” Biden said channeling his best internal Erdogan, arguing that the fiscal boost would help new businesses, increasing competition and... driving down prices. Because if in Turkey lower rates are somehow expected to lead to less inflation - according to de facto central bank head Erdogan - then in the US only trillions more in liquidity will finally unleash deflation.
Which reminds us: to the immortal words of George Orwell that "War is peace. Freedom is slavery. Ignorance is strength", we can now add that inflation is deflation.