The Consumer Price Index has increased 5.4 percent the past twelve months amid an unprecedented spendathon by Congress and two presidential administrations in response to the COVID pandemic, according to the latest data from the Bureau of Labor Statistics.
The month of September saw an overall 0.4 percent increase, including a 1.2 percent increase and gasoline and 3.9 percent increase in fuel oil.
Of course, in hindsight, the inflation was entirely predictable and a direct consequence of Congress’ spending, the weaker dollar and massive quantitative easing by the Federal Reserve.
Since Jan. 2020, the national debt has increased by $5.5 trillion as Congress has passed stimulus after stimulus to shore up the economy after 25 million jobs were lost at the height of the COVID lockdowns in April 2020: the $2.2 trillion CARES Act and $900 billion phase four signed by former President Donald Trump, and the $1.9 trillion stimulus signed by President Joe Biden.
Of that, $3.1 trillion was directly monetized by the Fed, which increased its treasuries holdings from $2.3 trillion to $5.4 trillion. About $500 billion has come from foreign central banks, which finally resumed new purchases beginning in about May 2021 after remaining at about $7 trillion for 17 straight months. The rest, about $2 trillion, was mostly purchased by U.S. financial institutions, in part by using emergency lending from the Fed.
As a result, the M2 monetary base has increased by $5.4 trillion since Jan. 2020 to its current level of nearly $20.8 trillion. We literally printed money to cover every bit of the debt that has been incurred due to the COVID pandemic and lockdowns.
Now, it looks like the economy is overheating, with inflation becoming particularly sticky amid the highest readings since the oil bubble of 2008, President Biden is struggling to pass the next piece of his languishing legislative agenda, his $3.5 trillion spending bill. Sen. Joe Manchin (D-W.Va.) has already ruled out voting for such a high number, and now Biden is moving in his direction.
Last week, Biden ruled out the $3.5 trillion topline stating to reporters on Oct. 15, “Look, it’s clear that it’s not going to be $3.5 trillion. So, the question is: How much of what is important do we get into the legislation?”
The original bill included $450 billion for universal prekindergarten, $500 billion for universal paid family leave, $111 billion for universal community college with two years paid tuition, $82 billion for retrofitting schools, $80 billion for job training, $500 billion for extending the $3,600 and $3,000 child tax credits, $222 billion for green energy tax credits and another $100 billion or so for forcing Medicaid expansion on 12 states that opted out of Obamacare’s Medicaid expansion.
Now Biden must negotiate many of those items away, that is, if he wants to get the bill across the finish line. Still, even if, say, $1.5 trillion were cut from the proposal, it would still be a gargantuan $2 trillion, undoubtedly forcing the Fed to continue with its massive quantitative easing program even as the central bank is signaling it is ready to being tapering its treasuries purchases.
Meaning, the elevated inflation the American people are experiencing every time they go shopping could be lasting longer — a lot longer. Stay tuned.
