Inflation can be solved by doing two things. First, you reduce the amount of circulating money in the economy by creating a new “tax” at or around the same percentage of income as you want inflation to be reduced by. The amount of the tax may need to be greater than the amount you want inflation to be reduced by, since you are taxing income and not existing wealth. Second, you (the govt) does NOT spend that money but puts it into secure accounts. Later on, in a year or several years once inflation has reduced down to closer to your target, you begin allowing people to spend out of these accounts in fixed amounts per unit of time, say up to 20% per year, and they can only spend this money on goods/services that are either 1) strongly weighted in terms of producing and/or having produced new economic value for minimal cost of existing economic value, or 2) produced entirely in and by foreign markets outside of your own economy in which you are attempting to control inflation.
Either by (1) or (2) you are causing the sequestered money to be spent in ways that will have the least possible impact on increasing inflation by leading to increases in demand and/ or reductions in supply. If you consume goods/services that weren’t already a part of your economy, then you win because you satiate demand without reducing supply in your own economy; likewise if you consume goods/services in your own economy in such a way as minimizes costs to produce and maximizes outputs/ROI as much as possible in terms of creating new economic value, then you also satiate demand in a way that militates against increasing inflation at least as much as possible.
The obvious problem is that by creating the new tax you are negatively affecting the economy and might cause a recession or depression. I claim that by not manipulating interest rates, just leave these as they normally would be, you avoid the biggest risk of causing recession or depression. Rising interest rates has a ton of effects on the economy and leads to the rich get richer, the poor and middle class get poorer; basically it means that anyone who owns assets and rents those to others is going to win, whereas anyone who doesn’t own assets to rent to others and needs to rent assets for himself to use is going to lose. Owners of large pools of capital and assets win, everyone else loses, under a high interest rate environment. For example, if the interest rate set by the fed is 5% then you can take one million dollars and put it in a cash money market, or loan it to businesses or the government using corporate bonds or treasury bonds, and get 5% back for free on your money per year. That is a free $50,000 per year. Enough for most people to live off of. And that rich person is getting a free $50,000 per year for doing nothing other than already owning a million dollars and putting it into an account at 5%.
By keeping interest rates low you avoid that, keep more money in the stock markets and avoid incentivizing added debt which only transfers more and more of your own (or the government’s) money away in eventual interest payments. Also, the USA has so much accumulated debt already that increasing the interest rate to 5% or more would threaten to bankrupt the entire system. Much better to keep it low around 1-2%.
Despite how the new tax is going to adversely impact the economy, this is only temporary AND is what allows inflation to come under control via the reduction in circulating money in the economy. It would be a careful balance to make sure you don’t tip into stagflation, but that could be avoided by tweaking the amount and frequency at which people can spend from their new tax/savings accounts. Plus I don’t think people will be that worried and it shouldn’t cause an economic panic or crisis because people know the money being taken in the new tax is still theirs, being kept in an account only they can access after a certain period of time. So they can begin planning for a year or two down the road, when they will have a new income in that year to use to buy goods and services. And a whole new economic sector would arise with companies assisting people to spend money from these accounts in ways that maximize gain and options to themselves while also satisfying the requirements that come with those accounts.