There are Some Untried Ways That Would Cause Price Inflation.

Electronics and Silver May Hold the Key to Higher Inflation.

The Consumer Price Index Would Skyrocket if Some of These Measures Were Implemented.

The Federal Reserve Says Inflation is Too Low!

The official rate of inflation as measured by the United States Bureau of Labor Statistics (BLS) Core (i.e. minus food and energy prices that are deemed to be too volatile to be included) Consumer Price Index is below the Fed’s 2% target.

The Federal Reserve wants higher inflation, but can’t seem to get it.

Why does the Fed want inflation?

It’s based on a counter intuitive, counter common sense, plain stupid idea that inflation itself causes the economic growth the Fed is trying to generate through monetary policy.

It’s as if they see a car moving fast down the road spewing smoke and they wrongfully conclude it’s the billowing smoke that is causing the car to go fast), not realizing, perhaps, the car would run better, faster and longer without the smoke.

Inflation is a defect not a feature in an economy. Higher inflation would hurt rather than help the economy, but the Fed believes we must have inflation to have economic growth, so here are some suggestions on how their desired inflation can be created:

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Seven Ways the Fed Can Get Their Inflation

In increasing order of magnitude of liklihood of success:

1. Print trillions of dollars/lower interest rates. This has already been done. The Federal Reserves’ three quantitative easing (QE) programs involved printing $4.5 trillion to buy US Treasury bonds and mortgage backed securities from the too big to fail banks.

The Fed also brought interest rates to zero during 2009-2015. As a result of this reckless monetary policy, the CPI did not reach the Fed’s inflation target but did help raise asset prices like stocks (driving the major US indexes to all time highs) and real estate (making homes unaffordable and helping to push the home ownership rate to all time lows)

Lesson: Rich people benfitted from QE. They don’t buy more food or consumer items when rates are low, they buy more stocks and homes driving those prices higher.

2. Raise the minimum wage. Higher wages would make goods and services more expensive to produce. With higher producer costs, producers will raise prices.

To date raising the mininmum wage has been tried in selected states and cities. The impact however on the CPI has been muted because of the limited scope of minimum wage increases and also because employees often fire workers and come up with even more efficient ways to provide their goods and serives with automation rather than raising prices.

3. Helicopter Money– Print and Send People Money. If the Fed prints money and distributes it to American, people will spend the additional cash causing a situation of more dollars chasing the same amount of goods and causing prices to rise. But this approach is risky. What if they don’t spend it? What if (gasp) they save it or pay down debt with their windfall?

The Fed as already noted AMERICANS ARE HOARDING MONEY and they don’t like it. Central planners like control.

If anyone is going to spend printed money to ‘help boost inflation, they believe they know best, so they might as well print the money and spend it themselves on stocks, bonds, student loan debt, US Treasuries, foreign bonds etc.

Higher Electronics Prices May Hold the Key

Decreasing electronic prices are causing trouble for the Fed.

4. Make Electronics More Expensive – Create a Silver Shortage.

Silver is an essential component in the production of electronics. While the amounts required per unit are a small portion of overall manufacturing cost, a five -ten fold cost of silver would raise the cost of production enough to cause the price of electronics to rise.

To ensure the rise in the price of silver, the government can do as it often did at the end of the 19th and beginning of the 20th centuries – purchase silver directly from the mines at a set price, a price they could set much higher. The US could add the purchased silver to its newly reformed strategic stockpile that was sold off in the early 1980’s.

Absent government buying, or coupled with, the U.S. could mandate mine closures in the U.S. and work with other nations to close mines that produce silver on the basis of saving the environment or stopping climate change. With less silver being mined the price would rise.

5. Mandate Purchases On Items in the CPI.

Obamacare did a nice job of making health insurance more expensive. Government should require that each individual or household with a net income over a certain threshold purchase certain authorized electronics (phones, computers etc).

The government could provide the mandated electronics to those under a certain income for free and subsidize purchases for those not too rich and not too poor. When the government subsidizes anything (eg. college) prices rise.

6. Slap a Tarrif/Tax on Chinese Goods

Seventy percent of the US economy is consumer spending. Since the bulk of consumer spending is focused on Chinese products, a simple tarrif on Chinese inports or a domestic tax at point of sale on Chinese products would immediately create the desired price inflation.

7. Do Nothing, Just Change How Inflation is Measured

If the BLS just changed the formula on how they measure inflation, it could immediatley, with no intervention in the real economy, create the desired amount of inflation.

Conclusion

The Fed doesn’t hit its inflation targets because they don’t want to! They don’t want to hit their inflation target because they don’t want to raise rates. Low, no and negative interest rates support the upper end of the economy and allow the government to finance massive deficits without significant interest payments. Why would they want to mess that up?

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