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These people never learn. Or they just don’t care.
The Biden administration is reportedly still considering sending out gas rebate cards to help Americans cope with rising gasoline prices. But this kind of government handout is one of the primary reasons we’re suffering through this inflation firestorm to begin with.
Of course, Biden blames Putin for rising prices. “It’s outrageous what the war in Ukraine is causing,” Biden said during a June 18 speech.
Supply restrictions due to economic sanctions on Russia are certainly part of the equation. Russia ranked as the world’s #2 oil producer in 2021. But oil prices were rising prior to the Russian invasion of Ukraine.
If rising prices aren’t all “Putin’s fault,” who do we blame?
The finger points straight at the Federal Reserve and the US government.
During the pandemic, federal, state and local governments forced everybody to stay at home. The US economy ground to a halt. In response, the Federal Reserve launched QE infinity. In less than two years, the Fed pumped nearly $4.5 trillion of new money into the economy. The federal government got in on the action and handed out trillions of dollars in stimulus money.
The result was predictable.
People were sitting at home producing nothing. The supply of goods and services contracted sharply. But thanks to stimulus demand remained robust. With their pockets stuffed full of stimmy money, American consumers kept right on spending. This was a recipe for rising prices. There was more money in the system chasing fewer goods and services. Prices rose. Everything became more expensive — including gasoline.
Today, we’re paying the price. We’re paying for our stimulus checks through the inflation tax.
On top of that inflation tax, oil prices are being pressured upward by supply shortages. This is classic supply and demand dynamics. When supplies shrink, prices rise, causing demand to fall. As people feel the pinch of rising prices, they drive less, protecting the remaining supply. So, what happens if Uncle Joe passes out money to defray gasoline expenses? Demand will increase, putting further pressure on the limited supply. And as a result, prices will rise.
On top of that, the US government is broke. That means any plan to hand out money will necessitate raising taxes or more borrowing. If the government raises taxes on oil companies, that will simply increase their costs. That will eventually get passed on to you. If oil companies don’t pass the costs on to consumers, it will impact their ability to produce more oil in the future. Supply problems will persist. Prices will remain high.
And if the government simply goes the borrowing route, the Fed will have to monetize that debt by printing more money and injecting it into the economy. In other words, even more inflation to drive general prices higher in the future.
The government handout “cure” for higher gas prices is literally the recipe for higher gas prices.
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