To quote the late Nobel-Laureate economist Milton Friedman, “Inflation is always and everywhere a monetary phenomenon.”

Between December 2019 and March 2021, the U.S. money supply – the total amount of money in circulation – grew by 27%. That’s a lot of growth in a short period of time.

During the height of the COVID-19 economic shutdown, the federal government issued three rounds of stimulus checks. In March 2020 it sent out $1,200 per adult and $500 per child. Then in December 2020, another $600 per tax filer and $600 per child was released. Then in March 2021, it sent out another $1,400 per tax filer and another $1,400 per child.

How could the federal government afford to send out all that stimulus money? Deficit spending. The U.S. Federal Reserve simply wrote checks to the U.S. Treasury. Unfortunately, all those newly created dollars were not supported by new market productivity. In fact, U.S. gross domestic product – the total value of U.S. goods and services produced – shrunk by 1%. When more dollars (demand) are trying to purchase a shrinking market of goods and services (supply), prices will go up. That’s inflation: a persistent increase in prices and loss of purchasing power.

The purchasing power of a December 2020 one-dollar bill is equal to $1.20 in April 2024. No wonder every trip to the gas station, grocery store, or favorite fast-food restaurant seems like you’re being punished.

Today, President Biden and Congress aren’t sending out stimulus checks, instead, they are spending $1 trillion more than they are receiving in taxes every 100 days. How can they do that? Once again, it’s the U.S. Federal Reserve to the rescue. To cover any shortfall between spending tax revenue, the Federal Reserve must sell debt. In addition to covering record-breaking deficit spending, the Federal Reserve must also refinance the existing debt that is coming due.

Since March 2022, the Federal Reserve has raised its interest rates to member banks from 0% to 5.5%. This series of interest rate increases was intended to slow economic activity – even possibly increase unemployment – in an effort to tame the inflation caused by the flood of stimulus checks and our current record-breaking deficit spending. It’s like starting a fire and then trying to extinguish it without anyone noticing. That’s not working.

Today, the U.S. government is more than $35 trillion in debt. We haven’t seen debt accumulation on this scale since World War II, but we’re not currently fighting a world war. President Biden claims the economy is much better than people realize. But if we’re currently borrowing $1 trillion every 100 days, when times are supposedly good, how much will we have to borrow during the next economic downturn?

Remember, it now costs $1.20 to buy something you could get for $1.00 just four years ago. That’s a huge loss in purchasing power.

Today, 100% of all federal taxes go to fund Social Security, Medicare, Medicaid, and interest on the $35 trillion dollar deficit. Money for everything else the federal government does – defense, EPA, courts, education, infrastructure, etc. – must be borrowed.

To quote economist Milton Friedman again, “that which cannot be sustained will end.”