Reckless Government Spending Has Decreased Dollar Purchasing Power For Americans & Their Families

✪ The US Dollar has lost 20 percent of its value during the past four years, making inflation one of the top issues cited by Americans in this year’s recent elections. The entire Biden Administration narrative about consumer inflation being caused by COVID “supply chain disruptions” was just another lie…

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hile inflation has slowed significantly since 2023, it has crept back up by 0.3 percent in November, indicating that the threat has receded but not gone away. Between the fiscal years of 2020 to 2023, the Biden Democrats added $8.8 trillion to the federal debt.

Some of those same Democrats have blamed the resulting inflation on supply shortages due to the pandemic and Russia’s invasion of Ukraine. Still others point to corporate greed taking advantage of crises to gouge consumers to generate excessive profits.

However, two recent reports from the Federal Reserve undermine all of these arguments.The Fed’s November report regarding its Global Supply Chain Pressure Index (GSCPI); which tracks a number of different factors including shipping, airfreight and other transportation costs, suggests that while supply chain disruptions did cause shortages within certain industries, they were not the primary drivers of overall inflation.

The GSCPI supply chain report showed that the index spiked in 2020 and again in 2021, which coincides with government lockdowns in response to the COVID-19 pandemic. Russia’s invasion of Ukraine in February 2022 coincided with another increase in supply chain stress, seemingly lending credence to the “Putin price hike,” as Biden called it in a 2022 post on social media platform X.

I'm going to do everything I can to minimize Putin's price hike here at home. pic.twitter.com/UT1V4DIuNd
— Joe Biden (@JoeBiden) March 9, 2022

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The GSCPI fell sharply again two months later, however, and has been trending in negative territory for most of the past two years. This indicates that supply chains had fully recovered by the start of 2023 and have generally been in better shape than before the pandemic ever since. However, while official inflation indicators slowed from a peak of 9 percent in 2022 to 2.7 percent in November, prices have continued to rise.

Peter Earle, senior economist at the American Institute for Economic Research:

“Constrained supply chains are not a reasonable explanation because prices did not return to trend as output recovered. Nominal spending continues to surge, indicative of a demand side issue.”

EJ Antoni, an economist at the Heritage Foundation, likewise argued that while supply chain interruptions caused prices to go up temporarily in certain industries, such as automakers, they fail to explain persistent and widespread inflation.

The GSCPI data, he said, “speaks to why that entire narrative about inflation being caused by supply chains was just wrong.”

He continues:

“We didn’t have inflation simply because supply chains were snarled; we had inflation because the government spent, borrowed, and printed trillions upon trillions of dollars it didn’t have. If we actually did believe that higher prices were caused by these supply-chain difficulties, then what we should have seen as supply chains normalized was not only inflation coming down but prices coming down.”

Indeed, prices for both new and used cars, which were impacted by supply chain issues, have been trending downward in 2024, according to Fed data, and dealers are now offering greater incentives to move vehicles off their lots as carmakers resolve their bottlenecks. But average prices throughout the U.S. economy are not coming down, suggesting factors other than supply chains have been at work.

Antoni said:

“Why do we still have, overall, 20 percent higher prices than we saw in January of 2021? It’s because the government has debased the currency to pay for all its excess spending.”

Chris Edwards, a fiscal expert at the Cato Institute, said this underscores the urgency for the incoming Trump Administration to bring down federal spending.

“There’s general agreement among economists now that it was that big spending that Biden did—that spiked inflation. I think the biggest risk for Trump and the Republicans is if inflation spikes again.”

How Government Debt Fuels Demand

An analysis by William Beach, an economist at the Economic Policy Innovation Center, details the links between government spending and the dollar’s loss of value.

Beach writes:

“The Federal Government borrowed heavily to meet its spending needs in 2020 and 2021, and that borrowing was converted by the banking system into funds that fueled the rise in prices.”

He cites the new $8.8 trillion in federal deficits between fiscal year 2020 and 2023, which the Federal Reserve funded by buying government debt, which is then passed on to private banks within the Federal Reserve System, which in turn is lent out to customers.

This led to a 25.4 percent increase in bank assets between 2020 and 2021, which banks passed on as loans, Beach wrote. Consumer loans increased by 19.2 percent; mortgages grew by 12.1 percent; and total bank loans increased by 13.7 percent.

This created a $5.4 trillion increase in the M2 measure of the U.S. money supply, which includes money in circulation and credit, between 2020 and 2022, corresponding with price hikes, including a 21 percent increase in food prices and a 43 percent rise in home prices.

Beach stated:

“Prices probably will not fall back to 2020 levels; however, Congress can help increase economic efficiency and productivity, which will help raise incomes and, thus, close the family budget squeeze.”

This could include cutting regulations, tax reforms, and other measures to help the U.S. economy produce more, and more efficiently, to better align supply with demand. But it would also include getting federal budgets back into balance.

Antoni said aside from getting spending under control, “we also have to rein in the Federal Reserve.” Antoni said:

“If the big spenders in Congress and the White House are the bank robbers, the Fed is the getaway driver. It’s the Fed that is actually devaluing the currency by printing more of it in order to finance all that government spending.”

The Fed, which raised interest rates starting in March 2022 to combat inflation, has since reversed course, cutting short-term rates by half a percent in September and by an additional quarter percent in November, allowing inflation to tick upward again. Meanwhile, the M2 money supply, which decreased by $1 trillion between June 2022 and June 2023, has expanded by $500 billion since then.

Greedflation

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Other explanations for inflation include what has been called “greedflation.” Noting that even after supply-chain issues were resolved, food prices continued to rise, Sen. Elizabeth Warren (D-Mass.) stated at a Senate hearing in May that “grocery prices are up because of good old-fashioned corporate price-gouging … giant grocery stores and massive food conglomerates are ripping people off.”

She blamed food retailers such as Walmart, Costco, Kroger and Ahold Delhaize (a parent company which includes, among others, Stop & Shop), as well as a small number of dominant producers of cereals, eggs and meat for earning outsized profits from a geopolitical crisis, charging that “the pandemic gave these big food conglomerates an excuse to jack up prices on grocery staples beyond what was necessary to cover increases in their costs from inflation or from supply chain disruptions.”

Warren called for the government to “regulate grocery stores and corporate food producers.” In August, Vice President Kamala Harris similarly called for a ban on “price-gouging” in the food industry.

This argument, too, appears to be refuted by economic data, which show little evidence of companies earning above-normal profits in most industries. A May report by the Federal Reserve Bank of San Francisco examined price markups across major industries since 2020, and concluded that “rising markups have not been a main driver of the recent surge and subsequent decline in inflation.”

While the report noted price markups of more than 10 percent in certain industries, such as autos, petroleum products, department stores, and repair and maintenance services, the authors argued that “the surge in inflation through June 2022 was broad-based, with prices also rising substantially outside of these sectors.”

“Aggregate markups—the more relevant measure for overall inflation—have stayed essentially flat since the start of the recovery,” the report stated.

“The greedflation explanation is just absurd. The idea that hundreds of thousands of businesses large and small began to raise their prices at almost exactly the same moment, and then decided to slow the rise of those prices at the same time—and eventually dis-inflate their prices in unison as well—is an insult to any reasonable intelligence.

“The primary cause of the inflation was the Fed failing to stabilize nominal spending,” Antoni said. ✪