August 17, 2024

We do not think the Biden-Harris inflation theories -- gauging and supply chain disruption-- hold water. If we are correct, attempting to curb the inflation rate by going after the business pricing policies is a policy mistake that would lead to price control and a highly distorted economy. Also the government quest for onshoring could lead to an industrial policy and given the historical record of past industrial policy it seems to us that such a policy would take the economy down the wrong path. The non-monetary theory of inflation fails to explain the timing of the surge in prices. In contrast the monetary theory of inflation does not. The data shows the surge in M2 in the aftermath of the Pandemic and the subsequent surge in the inflation rate. If one is willing to equate temporal precedence with a causal relationship, then the graph suggests that the M2 growth rate caused the PCE inflation rate. The the surge in the M2 growth rate took place before the Biden administration took office. Therefore, it is incorrect to blame the Biden administration for the surge in the M2 growth rate that preceded the surge in the US inflation rate. The blame for the inflation rate lies squarely on the Fed actions. The data shows that with the implementation of QT, the M2 growth rate eventually resulted in a decline in the absolute levels. More recently the Fed has announced that it was cutting in half its QT program and as a result M2 has begun to grow once again. What does this curtailment of QT and the corresponding increase in the growth rate portend for the foreseeable inflation rate? If there is a lag as the data suggests , then the recent increase in the M2 growth rate will lead to a reversal of the declining trend in the inflation rate and will “temporarily” push the inflation rate above the 3% rate once again. But will this take place before the election, and will the voters notice or care?

You must have an active account to view these reports. You may register for a trial here

Download Complete Report in PDF Format

Download Complete Report in Word Format