The Coming Recession

In February of 2019, newly-minted Rep. Alexandria Ocasio-Cortez (D/Socialist – NY) introduced her first socialist broadside under the guise of the Green New Deal. In the process, Ms. Ocasio-Cortez deflected criticism about the increase in the deficit should it be adopted by saying that we should not worry about deficit spending because the federal government can just print more money. A simple solution from a simpleton.

The Congress had already during President Donald Trump’s term adopted two massive deficit spending bills in an effort to tame the economic effects of the government’s efforts to shut down America during the COVID pandemic. In the aftermath we now know, and many predicted, that the shutdown was unnecessary and that the long term effects would be devastating. Most economists not in the employ of the government or dependent on the government for grants and funding agree that those two spending bills were more than enough – in fact, maybe a bit too much.

But the arrival of the administration of President Joe Biden (D) brought with it additional waves of deficit spending – a third bill to deal with the economic effects of the pandemic, a fourth bill to engage in infrastructure building (mostly of things we didn’t need), and the combination of the two resulted in more deficit spending and an increase in the money supply – they just printed more money. And the inevitable inflation began with a roar – two many dollars chasing a static amount of goods caused the price of everything to increase. Add to that the government-forced reduction in available fossil fuels and inflation became like a roaring wildfire – the highest in four decades and to date there is no evidence that it will abate anytime soon.

Understand that. To date there is no evidence that it will abate anytime soon.

And to make sure that it doesn’t abate anytime soon, Mr. Biden without authority, without congressional approval and without a brain just “forgave” nearly $300 Billion dollars in student loan debt. The individual amount was $10,000 ($20,000 if you had a Pell grant) and it went to those making less that $125,000 ($250,000 for a household). The beneficiaries were college students and graduates who are guaranteed to make about $900,000 more during their lifetimes than the people who are forced to pay for it – working men and women.

The effect of the debt forgiveness is to once again increase the money supply without a concomitant growth in the economy. More dollars chasing a stagnate amount of goods – inflation. Any “inflation” reduction in Mr. Biden’s version of the Green New Deal (and there was none*) was destroyed by the Green New Deal. And not remarkably, Mr. Biden followed the assurances of Ms. Ocasio-Cortez that we needn’t worry about the deficit – just print more money.

In the immediate aftermath of Mr. Biden’s executive order canceling student debt, Jerome Powell as Chairman of the Federal Reserve Board sounded an alarming note  at the gathering of America’s financial elites at Jackson Hole, Wyoming. He promised rapid and forceful action on the part of the Federal Reserve to reduce the money supply. And he noted that such actions would result in pain for consumers and businesses.

Quite frankly what else was he going to do? Mr. Biden on repeated occasions has punted dealing with inflation to the Federal Reserve. So much so that he denies any responsibility for causing it. It’s outrageous. It is the moral equivalent of somebody trying to empty a pool by pumping water out while the idiot on the other of the pool is pumping even more water into it.

The Federal Reserve has two main weapons for battling inflation. The first is to raise the interest rate on reserve balances. The effect of this is to make borrowing more expensive and thus reduce the amount of borrowing and shrink the money supply. It effects the cost of borrowing both for business and consumers. However, raising the interest rate will not do anything to reduce inflation if the moron at the top keeps increasing the rate of spending. The second is to reverse what is known as “quantitative easing.” Quantitative easing is precisely what Mr. Ocasio-Cortez was talking about – printing more money. It was being done to stimulate the economy both during the Bush/Obama recession and again to combat the government’s closing of the American economy during the pandemic.

In essence quantitative easing occurs when the Treasury Department (a part of the executive branch and thus under the control of Mr. Biden) issues vast quantities of bonds (debt) and the federal reserve system buys them by printing money – inflating the money supply. Reversing the system by either destroying the bonds or selling them at a steep discount will reverse the money supply.

The problem with both of these methods is the point at which you taper or stop doing either is not a mathematical formula. In large part it depends on the reaction of businesses and consumers to what has gone before. In virtually every case where the Federal Reserve has used these methods they have gotten it wrong and thus the so-called soft landing is missed and a recession has followed.

And that is where we are heading today. Because Mr. Biden and his administration will take no responsibility for the causes of inflation it is safe to assume that the Federal Reserve will need to be more aggressive and for a longer period of time in its uses of rate increases and reverse quantitative easing. And that will void any chance for a “soft landing” and most certainly result in a recession that will be steep, painful and long.

And while the fault for this lies immediately at the feet of Mr. Biden, it is you who ignored fifty years of incompetence and still elected him president. And as usual, the greatest burden will fall on the working men and women in the private sector. The members of the public employees unions who funded Mr. Biden will suffer not a lick. Curiously, the hallmark of socialism is the forced transfer of wealth. Little did we know that Ms. Ocasio-Cortez and Mr. Biden meant for that transfer to be from the working class to the wealthy and privileged elites.

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* The promised “reduction’ is arrived at by balancing current and real expenditures with illusionary and overstated savings and revenues in the long term. Not surprisingly, there are so many intervening events that when the “long term” savings and revenue never arrive there is no one around to call foul. Remember there are lies, damn lies and statistics and they arrive at the same point – stealing from you.