Inflation, the Debt Ceiling and Hobson’s Choice

April 17, 2023

Most people mistake rising prices for inflation. Inflation occurs when a Central Bank creates money at a rate in excess of the rate of wealth creation that theoretically “backs” the additional currency. Simply stated, the ratio of additional money supply to additional “widgets” is rising.” Rising prices are the evidence that inflation has occurred. The amount of money created (“money” as defined by Austrian economics) has dwarfed the amount of wealth creation since 2008. This is why rising prices have not become a “transitory” phenomenon.

The Government and the Federal Reserve is faced with a tough choice: immediate systemic collapse or death by a thousand cuts. If the Fed caves in to political and public persuasion and “pivots” by abandoning QT and rate hikes, it will further defer the inevitable and further fuel rising prices. If it continues on its course, in all likelihood 2008’s great financial crisis will become this year’s great financial collapse.