The Federal Reserve Fraud

This is a clear example of an ongoing issue that is wrong.

Federal Reserve faces tough balancing act between fighting inflation and spurring economic growth Story by Christopher Rugaber, May 6, 2025

On Sunday, Trump again urged the Fed to cut rates in a television interview and said Powell “just doesn’t like me because I think he’s a total stiff.”

With inflation not far from the Fed’s 2% target for now, Trump and Treasury Secretary Scott Bessent argue that the Fed could reduce its rate.

The Fed pushed it higher in 2022 and 2023 to fight inflation.

 

Focus on those words: Pushed interest rates higher to fight inflation.

The Federal Reserve has two primary missions, known as its dual mandate:

1. Price stability — controlling inflation
2. Maximum sustainable employment — controlling unemployment

I. INFLATION To control inflation, the Fed’s primary tools are interest rates and the money supply.

The Fed raises rates and/or reduces the money supply when inflation appears. To raise rates, the Fed’s primary tool is its control over the Fed Funds rate.

The theory is that higher interest rates make borrowing more expensive, which causes less consumer and business spending, which in turn reduces demand for goods and services, thus lowering inflation.

Further, higher interest rates strengthen the U.S. dollar, making imports cheaper.

II. EMPLOYMENT The Fed has no tools to affect employment directly. It can lower interest rates, hoping this will stimulate businesses to hire more people. Or it can pump dollars into the economy by purchasing T-securities (aka “Quantitative Easing”)

And none of this works.

THE FRAUD

When the Fed raises interest rates, business costs rise. When business costs rise, businesses raise their prices. Raising business costs to lower prices is so absurd, one wonders how the idea persists.

Today, economists worry that raising tariffs will increase business costs, which will cause inflation, but somehow they can’t see that raising interest rates also will raise business costs and cause inflation. Truly amazing.

In fact, inflation never has been caused by:

1. Interest rates being too low.
2. Too much federal spending

Inflation always is caused by shortages of crucial goods and services, most often oil and food.

Example: The famous Zimbabwe inflation was caused by a food shortage that came about when the government took farms away from farmers and gave the land to people who did not know how to farm.

Example: Argentina used price controls to prevent/cure inflation. The price controls discouraged production, which led to shortages of food, energy, fertilizer, diesel, meat, wheat, and machinery parts.

Example: Venezuela’s shortage of foreign currency due to an oil price collapse and national mismanagement led to shortages of imported food and medicine, worsened by strict currency controls. Domestic production was crippled by price freezes, expropriations, and flight of skilled labor.

Example: The most recent U.S. (and world) inflation was caused by shortages of oil, food, computer chips, metals, housing, healthcare, lumber, raw materials, transportation, workers, and other COVID-related shortages. The economy didn’t need “cooling” (aka recessing).

The economy needed the COVID-related shortages to be cured. And that is what began to happen. As COVID abated and the federal government spent more, not less, oil began to flow, workers came back to work, and shipping resumed.

None of this had anything to do with interest rates. It all had to do with reduced shortages.

The whole notion that somehow the Fed can reduce prices by increasing business costs is a fraud. The Fed has very little control over inflation or employment, and raising interest rates actually increases prices instead of reducing them,..

The Fed was given the “dual mandate” by Congress and the President, in a misguided effort to absolve themselves of blame for economic problems.

The real “dual mandate” should be on Congress and the President. They are the ones who can control inflation and employment by curing shortages and stimulating business hiring.

TO PREVENT/CURE INFLATION

Congress and the President first must identify the shortages causing the inflation, then cure them. For example, a shortage of oil will cause almost all prices to rise, because oil is a fundamental cost for all businesses.

Because the U.S. is Monetarily Sovereign (having the infinite ability to create dollars), Congress and the President have many tools to address inflation.

CURE FOR AN OIL SHORTAGE INFLATION

1. Release oil from the Strategic Petroleum Reserve (SPR) to temporarily boost supply.
2. Subsidize domestic production (e.g. shale, offshore) to increase U.S. output.
3. Expedite permitting for drilling, refining, or pipelines.
4. Incentivize alternative energy (e.g. solar, wind, nuclear) to reduce overall oil demand and substitute cleaner energy.
5. Invest in infrastructure and logistics to move oil more efficiently (pipelines, ports, refineries).
6. Use the Defense Production Act to prioritize critical energy infrastructure and materials.
7. Negotiate increased production with OPEC+ countries.
8. Lift or alter sanctions if they are restricting supply from countries like Russia, Venezuela or Iran (though politically controversial).
9. Provide financial aid or technology to energy-producing allies to ramp up their output.
10. Send rebates or subsidies for transportation or heating to offset high prices (e.g., gas cards, energy checks).
11. Fund public transit expansions or incentives for electric vehicles
12. Offer temporary tax relief (e.g., suspend federal gas tax).
13. Fund increased production and distribution of electricity

Congress and the President have the tools to deal with a food shortage inflation (Most notorious example was Zimbabwe):

CURE FOR A FOOD SHORTAGE INFLATION

1. Subsidize farmers to grow more of the crops in short supply.
2. Provide emergency funding or loans to farmers facing drought, disease, or other barriers.
3. Temporarily relax environmental or planting restrictions (like fallow land programs) to increase acreage.
4. Accelerate approval, funding, and distribution of fertilizers, pesticides, or genetically modified seeds where helpful.
5. Reduce tariffs or restrictions on imported food or agricultural inputs (like fertilizer).
6. Work with allies to facilitate global shipments of grain, rice, soy, etc.
7. Use diplomacy to resolve trade disruptions (e.g., war in Ukraine blocking wheat exports).
8. Invest in transportation and cold storage to move food more efficiently and reduce spoilage.
9. Help build or repair processing plants (meat, dairy) if capacity is disrupted.
10. Fund technologies or practices to reduce food waste from farm to table.
11. Increase food assistance (SNAP, WIC, school lunches).
12. Offer temporary food vouchers for scarce goods.
13. Release from national food reserves, if any (e.g., dairy and grain stocks).
14. Temporarily suspend ethanol mandates to free up corn for food instead of fuel.

The federal government has the financial and legal ability to deal with other kinds of inflations:

CURES FOR OTHER SHORTAGES THAT CAUSE INFLATION

Here are some shortages that often create inflation, along with the federal prevention and cure.

1. Housing: Tax credits and financial support for renting, mortgaging, buying, selling, and repairing housing.
2. Medical: Shortages of doctors, medical workers, hospital beds, medicines: Financial support for medical education, doctors, nurses, hospitals, pharmaceutical R&D, and medications.
3. Health Insurance: No deductible, comprehensive Medicare for all
4. Semiconductors and High-Tech Components: Federal support for U.S. production and distribution
5. Cars and trucks: Federal support for R&D, production, sales, transportation, and employees.
6. Labor and Employment: Eliminate FICA, federal funding of childcare, education, and lower tax rate on salaries
7. Transportation: Funding to reduce port congestion, container shortages, trucker shortages.
8. Raw materials: Funding to increase mining, refining, and importing of various materials
9. Electricity: Funding for renewable power sources — wind, solar, geothermal, tidal, biomass, weatherproof distribution: Tax credits for homeowners and businesses installing renewables, grants for research into renewable efficiency and battery storage, requiring renewable-ready construction in new buildings. Also, funding R&D for nuclear fusion and low-waste thorium reactors and Small Modular Reactors (SMRs):
10.  Advanced education in the sciences: Free college for all who want it (just as we currently offer free grades K-12) plus salaries for students.

SUMMARY 

To prevent and cure inflation, we must prevent and cure the causes of inflation. Inflation never is caused by “too much money”; it always is caused by shortages of crucial products and services, most commonly oil and food.

The Federal Reserve does not have the tools to prevent and cure those shortages, but Congress and the President do.

By leaving inflation control in the hands of an agency that does not have the tools to control inflation, while falsely believing that federal spending causes inflation, guarantees periods of uncontrolled inflation along with harmful legislation like federal debt limits.

Ignorance is expensive.

Rodger Malcolm Mitchell

Monetary Sovereignty

Twitter: @rodgermitchell

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MUCK RACK: https://muckrack.com/rodger-malcolm-mitchell;

https://www.academia.edu/

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