JULY 7 • 2022 | 15

and efforts at restricting 
commerce to limit the spread 
of the disease, resulted in 
economic disruption around 
the world. Supply chains 
do not neatly recover from 
disruption. 
Sniderman points to another 
factor that drives prices up: 
A small number of giant 
corporations control the 
supply of one commodity after 
another, from baby formula 
to computer chips. In markets 
with many suppliers, free 
market competition should 
theoretically keep prices in 
check. In markets controlled 
by a few players — called 
oligopolies — the leading 
corporations can easily collude 
to raise prices.
Dr. Alan 
Reinstein, CPA, 
George R. 
Husband Professor 
of Accounting 
at Wayne State 
University, 
identifies an 
additional factor, specific to the 
United States: deficit spending. 
“For an extended period 
of time” Reinstein observes, 
“under both Democratic and 
Republican administrations,” 
the government has spent far 
more money than it has taken 
in in taxes. 
“The Federal Reserve (the 
Fed) increases the money 
supply to fuel deficit spending, 
feeding inflation,” Reinstein 
adds. Because, by definition, 
“inflation occurs when too 
much money chases too few 
goods, thus raising prices,” 
the increasing money supply 
generates inflation. 
All these factors made 
inflation inevitable, but 
Reinstein notes that inflation 
and recession are simply 
characteristics of capitalism: 

“Boom and bust cycles have 
recurred throughout history.” 

WHAT SHOULD 
INVESTORS EXPECT?
In the past few decades, the 
Fed has kept interest rates 
unusually low. Bonds and bank 
accounts were, consequently, 
not attractive investments. 
Reasonably enough, as 
Reinstein notes, “Investors 
receiving small returns on their 
bonds often move funds to 
stocks.” Persistent low interest 
rates thus helped fuel dramatic 
rises in the stock market. 
But now, the Fed has begun 
raising interest rates. In 
Reinstein’s view, “Bond holders 
may experience higher interest 
income as interest rates rise, 
but often interest rate rises 
lag inflation rates, so the costs 
of inflation are only partially 
offset.”

After a long bull market 
— stock prices rising year 
after year — we may now see 
declining share values. 
Reinstein notes the 
predictable impact of rising 
interest rates on the real estate 
market.
“Higher interest rates 
predictably will also dampen 
demand for new residential 
construction,” he said. “
And 
higher interest rates will reduce 
demand for existing housing, 
which, in turn, will cause a 
decline in existing home prices. 
Thus, an increasing number 
of homeowners will find 
themselves ‘under-water’ with 
home mortgages exceeding 
home values.”
 
WHAT SHOULD 
CONSUMERS EXPECT?
Though inflation stresses 
people on fixed income or 

on limited salary, Reinstein 
observes that some workers 
may come out ahead. “Infla-
tion can inequitably benefit 
some workers who can 
demand higher salaries,” he 
said. 
Inflation may also benefit 
those who owe money, and 
can, in Reinstein’s words, “pay 
off their debts with inflation-
ravaged, lower-value dollars.”

DANGERS AHEAD? 
The Fed has begun to raise 
interest rates — in the hope of 
cooling off the economy — to 
slow inflation. Businesses, 
unable to get inexpensive 
loans, may cut back on plans 
to expand. Consumers, unable 
to finance purchases, may cut 
back on spending. This course 
has a serious danger: We may 
get, not just a cooler economy, 
but a cold one, a recession. 
If people continue to expect 
prices to rise, we may even 
still have inflation, the dreaded 
combination of rising prices 
and rising unemployment 
called stagflation. 
Other countries may 
anticipate worse. 
Stevenson lists the countries 
that traditionally depend on 
imported grain from Ukraine 
and Russia, including Egypt, 
Tunisia, Lebanon, Afghanistan, 
Laos and Sudan. Drought 
conditions in recent years have 
made several of these countries 
even more dependent; 
climate scientists anticipate 
worsening drought. Most of 
these countries, according to 
Stevenson, do not have cash 
reserves to purchase food 
staples to feed their populace. 
Throughout history, the 
prospect of widespread 
hunger inspires political 
unrest, revolutions and mass 
immigration. 

Dr. Alan 
Reinstein