The Disease Or Cure? Take Your Pick! (Part II), by Dennis Miller

Not addressing the disease means there will be no cure and the disease will continue, but the cure’s going to hurt. From Dennis Miller at milleronthemoney.com:

Disease and Cure Green Road Sign with dramatic clouds and sky - The Disease Or Cure? Take Your Pick!

Last week we discussed the consequences of continued high inflation. It will bring economic devastation, the dollar would lose its status as the world currency, the destruction of the middle class, and likely another Great Depression.

Chuck Butler outlined what happens if the Fed flinches and doesn’t do what needs to be done – quickly:

“Soon after the Fed Heads will turn around and cut rates, print currency, and start the whole shootin’ match over again.

…. Bottom line, they will attempt to get the economy going and the mess will eventually get bigger –

Dennis, they call that ‘stagflation.’ Basically, it’s the Fed trying to burn the candle at both ends and making things worse.”

In the early 1980’s Fed Chairman Volcker, saw high inflation and worried the dollar would lose reserve currency status. He raised interest rates to almost 20%.

Fred Chart Federal Funds Effective Rates 1980s

He raised interest rates to 15%, cut them back to 10%, and then raised them to 17.5% – kept rates high until inflation got under control. He solved the problem, but times were tough!

Recently Fed Chairman Powell said:

“While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses. These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain.

…. We will keep at it until we are confident the job is done.”

What happens if the government and Fed make the tough choices to get inflation down to their 2% target?

CNBC reports:

“The Federal Reserve on Wednesday enacted its second consecutive 0.75 percentage point interest rate increase as it seeks to tamp down runaway inflation without creating a recession.

…. The moves in June and July represent the most stringent consecutive action since the Fed began using the overnight funds rate as the principal tool of monetary policy in the early 1990s.

…. The fed funds rate…feeds into a multitude of consumer products such as adjustable mortgages, auto loans and credit cards. The increase takes the funds rate to its highest level since December 2018.”

The Fed followed with another 0.75% increase.

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