Inflation, booms and busts, their pathology and their cure
Never in history has a country that financed big budget deficits with large amounts of central-bank money avoided inflation. The Federal Reserve (the Fed) has been creating enormous amounts of money for years. The Fed is playing with fire, risking enormous price inflation in its efforts to stimulate the economy and avoid deflation. Inflation in producer and consumer prices always starts with and is caused by a preceding inflation in the supply of state fiat money. Deficits of the United States of America amounted to $6.7 trillion from 2006 to 2013, increasing the U.S. Public Debt by that amount. The Federal Reserve financed almost $3 trillion of these deficits by purchasing Treasury bonds and notes, a highly inflationary practice known as "monetizing the debt." The Fed has also purchased massive amounts of mortgage-backed securities. While this Post describes a pathological condition of the U.S. economy, it must be said that there are practical solutions to the pathology, solutions