BANKNOTE – Inflation: When citizens have to spend more dollars to buy the same goods

My bank's bond portfolio yields a higher return than loans. That's rare. An increase in the key interest rate of 525 basis points in less than a year is also very rare.

The Fed Reserve has driven up short-term interest rates dramatically and inverted the yield curve. The short-term interest rates of the Fed Funds are above the index for credit prices, i.e. the interest rates on five- and ten-year government bonds. Monetary policy is depressing banks' net interest income. And that is curbing lending, which in turn is limiting new capital for business expansion.

In addition, the Fed's actions have affected business activity in several ways. They have created uncertainty in the market. Investors and companies are not buying or selling, so no loans are being made. The velocity of money is zero.

The Fed's experimentation with MMT (Modern Monetary Theory: QE or money printing) is destroying our private economy and condemning our children to enormous debt.

Fed interest rates do not address the cause of inflation. Inflation is a devaluation of the dollar through excess money supply, another monetary policy mistake known as QE. This excess money supply was created to facilitate government spending. Look at the devastation suffered by households as prices for everything rise. And it's all because our politicians are allowed to drive us into massive debt to facilitate their re-election.

When the citizen has to spend more dollars to buy the same good, that is inflation. This is caused by the devaluation of the dollar, which was caused by an oversupply of money, and an oversupply of money was created to make spending easier. This is a death spiral. No politician has the backbone to stop it, so we citizens have to do it.

So the cause of inflation and the destruction of private wealth is government action. Inflation is a devastating tax imposed on us by the very government that was created to protect our individual rights.

Blame the banks if you want, but the real cause of this evil is our government. More specifically, it is our own fault for not stepping in and exercising the rights our warriors fought for. We elected the politicians, we can vote out those who spend money and drive us into debt.

Jay Davidson is the founder and CEO of a commercial bank. He is a follower of the Austrian School of Economics and a staunch capitalist. He believes there is a direct connection between individual rights and responsibilities, our Constitution, capitalism, and the intent of our Creator.