Commentary
Governments love inflation. It’s a hidden tax on everyone and a transfer of wealth from bank deposits and real wages to indebted governments that collect more receipts via higher indirect taxes and devalue their debts. That’s why we can’t expect governments to take decisive action on inflation.
To curb inflation effectively, interest rates must rise to a neutral level relative to inflation, to reduce the excessive increase in credit and new money from negative real rates. Additionally, central banks must end the repurchase of bonds, exchange-traded funds, and mortgage-backed securities as this would immediately reduce the quantity of currency in circulation. Finally, and most importantly of all, governments need to cut deficit spending, which is ultimately financed by more debt and monetized with newly created central bank reserves. These three measures are crucial. One or two would not be enough….