Article Image

IPFS News Link • Ron Paul Says...

End the Fed and Get More Doritos

• Ron Paul Institute - Ron Paul

The US government's Consumer Price Index indicates prices have increased 7.9 percent in the last year. While this statistic shows the highest rate of increase in forty years, it still understates the amount prices have increased, in part because the statistic is manipulated to minimize reported price increases.

A stealth form of inflation is "shrinkflation." Shrinkflation occurs when businesses reduce the size of a product so its price can stay the same. For example, Frito-Lay recently began putting fewer chips in a bag of Doritos, reducing the weight of a bag about five percent from 9.75 ounces to 9.25 ounces in the process. Of course, charging the same for less is a type of price increase.

This week the Federal Reserve increased the interest rate by .25 percent. This increase, it said, is a step in combating inflation. The Fed also announced that it plans to raise rates six more times this year. However, even if the Fed follows through on this plan, rates will only increase from near zero to around 1.9 percent. This is unlikely to effectively combat inflation. The Fed also indicated a commitment to reducing its almost nine trillion dollars balance sheet, although its official statement did not specify details such as when the Federal Reserve would start reducing holdings.

The Federal Reserve is facing a dilemma of its own making. Continuing to keep rates low will cause a dollar crisis. A dollar crisis then can lead to a major economic meltdown worse than the Great Depression. However, if the Fed were to increase rates to anything close to where they would be in a free market, that would dramatically increase the federal government's debt payments burden.


ContentSafe