Guest Post: The Source of High Inflation: Government Spending

Tyler Durden's picture

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

If we look at what's skyrocketed in price (healthcare, college tuition), we find they are government funded and supported. This is not a coincidence.

Inflation is generally viewed as a monetary phenomenon (print money excessively and you get inflation), but let's use a very simple definition: any loss of purchasing power. If your income buys fewer goods and services, for whatever mix of reasons (geopolitical, weather, monetary, fiscal, etc.), that's inflation "on the ground."

Consider this breakdown of the components that together make up the standard measure of inflation, the Consumer Price Index (CPI): (courtesy of What are the obvious major sources of inflation? Energy, medical costs and college tuition.


Here's an eye-opening look at medical costs and college tuition, also courtesy of


What differentiates medical and college costs from everything else? The Federal government's direct role in these markets. The Central State directly spends over $1 trillion a year on Medicare and Medicaid, and controls private spending with rules and regulations.

As for college costs: could their incredible expansion have anything to do with the Central State backing $1 trillion in student loans?

The Federal government controls much of the economy, directly or indirectly. It influences agriculture prices with price supports and regulatory controls, it influences the cost of housing with gargantuan subsidies (FHA and VA loans) and has basically taken over the entire mortgage market in its effort to re-inflate the housing bubble.

But it is striking that the highest inflation is occurring in precisely those sectors dominated by government spending: medical and college costs.

I was alerted to this correlation by correspondent David P., who wrote:

Inflation is centered in particular markets - not finance, housing or small business, but wherever the government spends money: Schools, food, energy, medical care.

This is of a piece with the previous post on the Federal Reserve's policy of supporting Federal spending by monetizing Treasury debt Why QE May Not Boost Stocks After All (September 26, 2012). In other words, the Fed doesn't necessarily create inflation across the entire economy (Why QE Won't Create Inflation Quite as Expected) by printing money; it creates inflation in government-funded sectors by monetizing Treasury bonds that enable massive Federal spending.

Government spending is by definition unhindered by market forces; having a monopoly on coercion, taxation and selling Treasury bonds to the Federal Reserve means you get to spend money without worrying about price or other market functions.

Government spending that funnels huge sums of money into cartels--for example, the sickcare and higher-education cartels--directly supports monopolistic pricing, which then drives costs higher regardless of the money supply expanding or contracting. This is the basic function of the Statist monopoly capital partnership that dominates our neofeudal economy.

Where the Fed has succeeded is in raising expectations of inflation that then drive speculative bets on higher prices. Part of the "don't fight the Fed" belief system is if the Fed wants inflation, it will get it. And if that's the case, then why not buy oil/gold/silver now before prices shoot higher?

The price of oil in the U.S. is influenced by many factors--geopolitical, currency, technology, policy, etc. Nonetheless, the rough correlation between base money supply and the price of oil in dollars is noteworthy:


It's also worth recalling that the Federal government itself is a major consumer of oil, as the Pentagon alone consumes as much oil as a small industrialized nation.

Government spending and intervention fuel inflation, and the Federal Reserve enables that spending and inflation by monetizing Federal deficits. Raising expectations of inflation has powered oil higher on speculative buying, but it's difficult to generate economy-wide inflation when wages are declining (courtesy of


Eventually, declining wages lead to demand destruction, as households consume fewer goods and services. But inflation that is being driven by government spending will not decrease, as the demand is being supported by a borrow-and-spend Central State supported by a monetize-Federal-debt-til-Doomsday Federal Reserve.

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Buckaroo Banzai's picture

Don't worry...Obamacare/Romneycare is gonna fix EVERYTHING!

NewThor's picture

Inflation = anytime they add "money" to the system. 


Richard Chesler's picture

Free ObamaPhone with every vote.

Come get yours!


Pinto Currency's picture


Read about the changes to the measurement of consumer goods price inflation:


This Charles Hugh Smith article is confused as it is using distorted CPI calculations and drawing conclusions from that.

Inflation is the debasement of currency by the central banks.  Consumer goods price inflation follows central bank monetary inflation or debasement.

Bastiat's picture

Monetary inflation when you increase money supply.  Price inflation is a function of money supply and velocity.

kaiserhoff's picture

Lame Stream Media doesn't care, but the Chicago teachers (sic)  /thugs got a 17% increase over 4 years.

Thank Gawd the state is bankrupt.  Otherwise Raum would have given them 117%.

Austerity, DlM style.

NewThor's picture

The ghost of Goebbels cares, bro.

Teachers are thugs? LOL 

kaiserhoff's picture

Not all teachers.   Just the semi-literate union pigs milking the schools as an endless patronage system.

I grew up in Illinois, NOT CHICAGA, but my hometown now has half the students it had when I went there, and a massive bureaucracy.  The Junior High I went to, covering a city block, is now full of paper pushers.  Back in the day, school district administration was in a two room annex next to the high school.  This shit has to end.

kaiserhoff's picture

Some of you missed this..., and me without my elephant gun...   My bad.

greyghost's picture

whew...and i thought it was me causing inflation when i choose target's brand over walmart's brand!!!! am glad i am off the hook

Whiner's picture

Gawd! They don't want to be measured by improved student test score cuz their student be too dumb too learn! Like, dats what happened to me! I am deprived, not depraved. Gimmie mo money.

knukles's picture

Schooling is utilized by the Establishment to brainwash/condition/propagandize it's subjects.
The olde days true education, currently r4eferred to as a classic education, designed to develop character through the immersion of philosophy, arts, literature, science and mathematics in the form of "reading" is existent virtually nowhere, anymore.
I had enjoyed some 4 years of such as an American ex-pat in London way back in the dark ages.
T'was a different world geared to critical broad thinking wherein detailed facts and data were to be referenced in books, libraries.  Not meant to be quoted verbatim.
It was an environment where one could not master a subject through wrote memory... and therein it's demise. 
All were no equal.
And therein all were not properly brainwashed.
It was therefore inappropriate for a NWO, wherein thought is not permitted

Poor Grogman's picture


"All were no equal.
And therein all were not properly brainwashed.
It was therefore inappropriate for a NWO, wherein thought is not permitted"

heres one original...

A Nanny Moose's picture

Teachers....when you do something wrong, they make you do it over.

That little curly haired girl on the right looked is she was about to be eaten.

MiltonFriedmansNightmare's picture

Not to worry, education won't be necessary in the forthcoming neofeudal society, at least for the majority of the proles.

pods's picture

Smart enough to run the machines, dumb enough to accept the conditions.

(paraphrasing Carlin, RIP)

Anusocracy's picture

A Morlock-Eloi hybrid.

Slightly Insane's picture

Lack of competition in education (in the public sector), Federal Government involvement (you know what they're good at), and the unions control the agenda .... and I agree ... the model is failed, broke, and that animal just won't die.  These politicians all say the same bullcrap, and what they deliver is the exact opposite.  The marxist agenda is failing in a big way.  This game is over!

jal's picture


"What differentiates medical and college costs from everything else? 


The Federal government's direct role in these markets. 


The Central State directly spends over $1 trillion a year on Medicare and Medicaid, and controls private spending with rules and regulations.


As for college costs: could their incredible expansion have anything to do with the Central State backing $1 trillion in student loans?"


My comment:


Let's look deeper into the accusations.


The federal gov. is involved because private enterprise has control of where the gov. money should be spent so that private enterprise can profit the most.


dougngen's picture

How does your ridiculos statment constitue "looking deeper"? Maybe you should turn off MSNBC and look at how government intervention has distorted every market it ever took over. Just ask Barney Frank how "houses for everyone" worked out?

"The pressure to make more loans to minorities (read: to borrowers with weak credit histories) became relentless. Congress passed the Community Reinvestment Act, empowering regulators to punish banks that failed to "meet the credit needs" of "low-income, minority, and distressed neighborhoods." Lenders responded by loosening their underwriting standards and making increasingly shoddy loans. The two government-chartered mortgage finance firms, Fannie Mae and Freddie Mac, encouraged this "subprime" lending by authorizing ever more "flexible" criteria by which high-risk borrowers could be qualified for home loans"

spdrdr's picture

Nice link, dougngen.

Methinks that there will simply not be enough rope or power poles.

All Risk No Reward's picture

Not just any private control, but the private Money Power control.

“This Act establishes the most gigantic trust on earth.…When the President signs this Act, the invisible government by the Money Power, proven to exist by the Money Trust Investigation, will be legalized.…The money power overawes the legislative and executive forces of the Nation and of the States. I have seen these forces exerted during the different stages of this bill.…” (Congressman Charles A. Lindbergh, referring to the act which established the Federal Reserve. Congressional Record, Vol. 51, p. 1446. December 22, 1913.)

Who is this Money Power?  They control the Federal Reserve system (Bernanke is a misdirection puppet, people, just like Greenspan) and the mega banks (and basically every megas corporation and government institution) by way of using the assets they strip from society to fund their control over these institutions.

Debt Money Tyranny is their Trojan Horse

Yen Cross's picture

 Yet, all the "Tea Leaf", reading Central Bankers are obliged to redirect huge flows of "Fiat", to the [ SPAWN / OFFSPRING], of the 2008 crash!

  Some how the Japanese believe all those multi -tiered ,[ golf "driving ranges"], will outstrip[revenue from], parking garages with toll booths!

 Here's the Sunday calendar.

Time Cur. Imp. Event Actual Forecast Previous   Sunday, September 30 All Day   Holiday China - Mid-Autumn Fastival 16:30  AUD   AIG Manufacturing Index     45.3     16:50  JPY   Tankan Non-Manufacturers Index   6 8     16:50  JPY   Tankan Large Manufacturers Index   -3 -1     17:00  KRW   South Korean HSBC Manufacturing PMI     47.50     17:00  KRW   South Korean Trade Balance   2.72B 2.00B     17:30  AUD   MI Inflation Gauge (MoM)     0.6%     18:00  CNY   Chinese Manufacturing PMI   49.80 49.20     20:00  IDR   Indonesian Inflation (YoY)   4.60% 4.58%     21:00  IDR   Indonesian Trade Balance   -0.08B -0.18B     22:00  INR   HSBC Markit Manufacturing PMI   52.50 52.80     23:30  INR   Indian Trade Balance     -15.5B     Legend:
Richard Chesler's picture

The name is Ponzi...Uncle Sam Ponzi.


NewThor's picture




Central Banks loaning out money to banks and hedge funds at 0% so they can then loan that money back to governments at 2% to 23% is a Ponzi?


How have Treasury Bills been doing the the last year or so?

monogratis's picture

No, it's a racket built on a ponzi.

Death and Gravity's picture

Of course it is. Central banking EXISTS to feed the beast - to feed funds into an institution that would never be able to procure it itself by honest means.

Disenchanted's picture




On central banksters('FED') and QE3:


"If the American people ever allow private banks to control the issue of their money,
first by inflation and then by deflation, the banks and corporations that will
grow up around them (around the banks), will deprive the people of their property
until their children will wake up homeless on the continent their fathers conquered."


Above quote attributed to Thomas Jefferson(in 1802 in a letter to then Secretary of the Treasury, Albert Gallatin)

Below an excerpt from(my emphasis):

The Fed’s US Land-Grab Hidden Within Purchase of Mortgage-Backed Securities


The latest scheme of the banking cartels has been introduced as QE3, which is nothing more than a massive land-grab in the domestic US by the technocrats under the guise of purchasing the mortgage-backed securities through the Federal Reserve to alleviate the pressure the banks are feeling from the bait-and-switch they caused.


Essentially, as the Fed buys the mortgage-backed securities, the central bankers now own all those properties which were bundled and securitized. The experts are still coming to terms with how many homes, small business, small farms and other lands were mixed-up into this Ponzi scheme. The actual total numbers of victimized Americans are continuing to rise and are currently unknown. However, it is clear that as this monster grows, it will be the Federal Reserve at the helm, making sure that more Americans are displaced and foreclosed on.


It is not the value they are after. Bernanke sets the tone for that with interest rates. It is the physical property that interests the central bankers. And this is a massive land-grab – the likes of which has never been attempted in the US and are likely to be a major contributor to our downfall as a sovereign nation. Through the mortgage-backed securities, the central bankers will literally own most of the domestic US.


Jason T's picture

Socialism: Gov't allocates capital (your capital on your behalf)

Capitalism: You allocate capital ..


So since 1 in 7 Amerians are getting an average of $134 a month in food stamps for example, that means the other 6 out of 7 are each "donating for a good cause" $22 a month to that 1 in 7.

Got a family of 4?  $88 a month is your gun to the head benefit you help provide.  

NewThor's picture

Post 2008 Bailout to infinity Capitalism = Rob everyone blind and get the "little people" to blame the $200 trillion dollar hole on 'foodstamp' people.

Hey. You like math. So if the deficit is $1.6 trillion, then are YOU really paying for those food stamps, or is the printing press doing all the heavy lifting?

Sidenote: How much have Iraq and Afghanistan cost us? What prizes and rewards did we win from that adventure? What's the score on the battle for the hearts and minds of the invadees?'s picture


Hey. You like math. So if the deficit is $1.6 trillion, then are YOU really paying for those food stamps, or is the printing press doing all the heavy lifting?


An increase in money supply is a tax called inflation. But the lifting is actually not bad because package size is decreasing while prices are increasing. That's a great consolation to the little guy.

shuckster's picture

No, dumbass, the minorities aka blacks are a BIG part of the problem. Along with the Jew banks! that's the point. everytime one of those monkies goes to Walmart with a snap card loaded with YOUR tax dollars, they are eating YOUR food. They are coming into your house, taking the potato salad and eating it at their house! And the Jew bankers are doing the same. Get it through your head. The Jews run/ have always run the financial industry. GOLDMAN SACHS? Um lemme guess, is that German, or Dutch perhaps? No IT'S FUCKING JEWISH, obviousy. Do you know anyone on SNAP cards? "Oh I know this one white family that collects welfare". Well duh, white people pay for welfare, so they should be able to collect it every once in a while. THEY FUND the PROGRAM. It's their money to take. Black people do not pay taxes, they collect them via handouts for their votes from Jewish backed politicians. And how do the politicians avoid the bad press from taking money from Sheldon Adelson (Romney) and George Soros (Obama)? Because Rupert Murdoch (Fox) owns the media that feeds you your information. THESE MEN ARE ALL JEWISH, obviously! Are Jews bad? I don't know. Are black people bad? Don't ask me, I don't know any of them personally. But I do know that every time I see a rotten, corrupt institution, there always seems to be a bunch of Jews in close promixity. "Correlation doesn't equal causation though!!" Fine, it doesn't. But why risk it

Nothing will change until we look at the very obvious writing on the WALL

Don Levit's picture

Insurance coverage also arbitrarily inflates prices, particularly at claims of $25,000 and below.

What we need to do is to give people first dollar coverage, but provide discounts for voluntarily not making claims.

In my plan design, with a separate, primary policy, one can build $25,000 in paid-up coverage over 36 months.

This reduces premiums by 60%, simply by voluntarily choosing another way to pay claims below $25,000 other than through insurance.

Don Levit

kaiserhoff's picture

Good start and something I've advocated for years.  First dollar health insurance is 14 kinds of stupid, and an endless subsidy to corporate drug pushers.  Ethical Drugs - what a load of horse shit.

How about thinking outside the box?

Greatly reduced premiums for those who stay in shape, and are willing to try herbal/nutritional remedies first.

Reduced benefits to those who are morbidly obese, nicotine addicts, wino-Americans, etc.

For those addicted to meth, PCP, crack, bath salts... - we should offer assisted suicide, not that they need it.


NewThor's picture

So does Marijuana qualify as Herbal Remedy or the Assisted Suicide category?

kaiserhoff's picture

The stuff makes me sleepy and gives me a headache.  Your results may vary, but unless you have glaucoma, or are undergoing chemotherapy, I don't think the taxpayers should support your buzz.  Thanks for playing.

NewThor's picture


Seriously, you do realize that if Marijuana was legal, I'd have the best garden in the USA? Ain't no taxpayers ever gotta get involved. Ever.

Results do vary.

I've mastered all 7 of the arts. 

So break your people lumping brush in half, dude.

kaiserhoff's picture

Let a thousand flowers bloom.  I don't care how wasted you get.  I'm a libertarian.  Paranoia and the munchies,,, sheesh.

Just grow your own and don't mix it.  People should eat veggies, not become them.

NewThor's picture

About 10 days ago, I was sitting at a bar.

An extremely nice guy who was in from out of town and who smelled like the Obama administration sat down next to me and asked me why I thought Ben Bernanke was the anti-christ.

I found this rather odd, but we continued to have an excellent conversation for about 3 hours about economics and physics. 

I'd never met anyone who defended the Federal Reserve with such vigor. He also had two plain clothes military G-men near him watching my every move and listening to every word. 

About 3 days later, I go to a bar again.

15 minutes later. He shows up again.

We have another excellent conversation.

The one thing he told me that sticks in my mind....

"The dollar is backed by the most powerful military in the world."


Sometimes it pays to be paranoid.


I am an Alpha Omega male.

vegetable? lol

monogratis's picture

LoL.  Yeah, but what happens to the most powerful military in the world when the people who pay them go broke?

NewThor's picture

An era of forgiveness.

That's what I'm talking about.

Everybody on the planet stands down and comes to the table.

No more war. 


kaiserhoff's picture

Great story.  My FBI file is bigger than yours.., or maybe not;)


Smelled like the Obama administration... gotta love it.  Can you give us a hint?

I'm thinking stale French Whorehouse?   or maybe eau de Bahny Fwank?

NewThor's picture

Deep space Nebraska navy?

A star Jumper. 

School of Ra.

I'm just a poet.

With a vivid imagination.

At the end of the day,

It's all a communication breakdown.

There is a way, me you, Ben Bernanke

and the rest of the world

can figure out a way

to build something

that can last,

grow and prosper.

Step into the 2000's,

ladies and gentlemen,

We can all be saved.

Obstruction era,



hidingfromhelis's picture

Who pays the pharma-lobbyists and owns the congress creatures?  Wait, was your question rhetorical?

Don Levit's picture

Thanks for your reply.

It really is simple math.

Coverage continues to build every month, like a supersized HSA.

Those who make claims, have lower paid-up coverage.  Those who do not make claims have higher paid-up coverage.


It's like withdrawing from a 401(k), or leaving the balance intact.

It is a voluntary decision one makes to tap benefits.

Yes, his back may be against the wall, and he may have few other options, but it is still a voluntary decision with natural, mathematical consequences.

Don Levit

verum quod lies's picture

Read “This Time is Different”. The general causal sequence seems to be: (1st phase) bad fiscal policy – i.e., deficit spending, (2nd phase) bad monetary policy – e.g., the “monetization” of bad fiscal policy, and then rinse and repeat until finally (3rd phase(s)) crisis (1st banking and/or shallow economic caused typically by declining real estate prices then currency and/or deep and severe economic). Essentially, it’s not just inflation that is caused by government intervention and spending, but it drives the monetary response which in turn drives the final crisis and/or collapse. This time is not different, and neither is the inflation seen in the healthcare and education industries in the US.


10mm's picture

Inflation will EAT the purchaing power of the EBT.That's how EBT will go down,among the general population.Geez.

Yen Cross's picture

 Hey folks, insurance companies are a pain in the ass!  Insurance Cos. are the " antithesis" of " pari passu"!