Get Ready for Price Controls if Inflation Accelerates

James A. DornNearly 50 years ago, in the heat of August 1971, President Richard M. Nixon issuedExecutive Order 11615 to impose the first wage and price controls since World War II. They were intended to suppress inflation, which at the time was less than 5 percent. But just as they did during wartime, the 1971 price controls went on to distort market prices and led to shortages.When the controls were lifted, after 90 days, inflation continued its upward trend due to the still rapid monetary growth and, by 1975, stagflation reared its ugly head. However, the price controls, low interest rates, and fast money growth were still supported by then Fed chairmanArthur Burns, and helped get Nixon reelected in 1972. It was not a proud moment for the central bank, but could it happen again?Monetary and Fiscal StimulusPrior to the COVID-19 pandemic, inflation had been tame for some time. But the government responded to the pandemic with a jump in money growth rates and a surge in government spending. Since February 2020, theFed ’s balance sheet has expanded from $4 trillion to $8 trillion, and the money supply (M2) has grown by more than 25 percent. Meanwhile,federal government spending as a percent of GDP went from 21 percent in FY2019 to 31 percent in FY2020, and President Biden has proposed spending $6 trillion in FY2022.Federal debt held by the public reached 100 percent of GDP in 2020 and is projected to increase to 117 percent by 2031.At Wednesday ’s press conference, followin...
Source: Cato-at-liberty - Category: American Health Authors: Source Type: blogs