Taming Inflation

 


Inflation was a natural result of many years of massive public spending. COVID Pandemic spending was a major cause, but then that spending saved the day when tens of millions lost their job to massive shutdowns of businesses. The pandemic caused a social shift – many lost jobs were already heading to the scrapheap of obsolescence – that continues its strong debut. Tens of millions of out of work or marginally employed workers still must improve their skillsets if they expect to earn top dollar in a rapidly modernizing economy.

Displacement and disruption are ongoing currents in our economy and social order. That instability creates both opportunities and crushing threats to individuals. Those who are prepared, survive just fine. Those who aren’t prepared, find pink slips and joblessness.

Individual businesses, including millions of small businesses, find innovative products and services on the market these days. Old inventory will not move, and losses accumulate. New product lines will sell quickly. Supply chain issues abound in this climate and cause yet more disruption. The war in Ukraine was the cherry on top of that unwanted sundae.

The Federal Reserve has and is doing its job to control inflation. Manipulating interest rates is one of its largest weapons in its armory. But they also have control over the dollar amount of Treasury bills, notes and certificates. They can sell them to increase the money supply or buy them back to reduce the money supply. This is a handy short term inflation fighter. Regulations are another weapon to use, requiring banks to increase or decrease their deposit reserves for borrowing.

Like any medicine, it takes time for the body to absorb it. Results of doses vary in circumstances that are highly varied themselves.

Meanwhile, investors and bank depositors can expect competition at rising rates of return. We haven’t seen 5% interest rate on basic savings for many years. Interest paid on average balances in checking accounts. There are millions of people in our economy who have never heard of this. So now is a good time to place savings in banking institutions.

Good credit customers will have access to loans but at a higher interest rate. This will dampen loan demand but also allow banks to select borrowers with the best credit histories. In short, banking is headed to markets more normal of past years.

Changing demand for products and services is a big weapon available to most consumers. Don’t like the price? Do without the product. Downsize your consumption, too. We all have waistlines too big to retain. Now’s a good time to go on a diet and save inflated dollars.

It took a few years for inflation to arrive from our economic policies. It will take time to tame it. Patience is needed.

October 14, 2022

 

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