Inflation: The High Cost of Biden’s Errors

What do politicians know about the conduct of war? Virtually nothing and yet it does not stop them from criticizing the military from both the left and the right. The common complaint is that the military prepares for the previous war to the detriment of technology and geopolitical changes. Not being a military man or student I do not know whether that is a legitimate criticism or not. More importantly neither do the members of Congress. But what I do know is that the same criticism can be leveled against the government economists who seek to guide the American (and global) economic policy. And nowhere is that more prevalent than in dealing with the recent inflationary cycle and its financial effects. President Joe Biden (D) – a man defined by the fact that he has been on the wrong side of every foreign policy for five decades – has added to his portfolio by being on the wrong side of every economic and domestic policy since the beginning of his tenure as President of the United States. History will record whether Mr. Biden has either proven again that socialism does not work, or that he may be the dumbest man to ever hold the office – or both.

An October 9 Streetwise article in the Wall Street Journal by James Mackintosh confirms my suspicions that both the Federal Reserve under Chairman Jerome Powell and Elmer Fudd, the presumptive head of Mr. Biden’s economic policy team, are on the wrong track for addressing the current economic malaise:

Good news is bad news, and on Friday it was very good, and very bad. The monthly payrolls report showed a superstrong labor market, with more jobs created than expected and unemployment matching a 53-year low. Stocks dropped, as did bond prices, with bond yields up. Such is the world of high inflation—and it is creating serious problems for those trying to cushion their portfolios against severe loss.

The basic pattern of markets for the past two decades has been reversed. Investors grew used to it, but it no longer works: Strong economic data meant better profits, so were good for stocks, but also meant a little more inflation, so were bad for bonds, pushing up yields. For 20 years there was a strong tendency for stocks to rise on days when bond yields rose, and vice versa.”

Mr. Powell seems to be hell bent on using unemployment as the key determinant of how to battle inflation. In simple terms the Federal Reserve’s key interest rates will continue to go up at the current accelerated rate until employment drops and unemployment increases. This is about the intersection of the supply and demand curves. When demand exceeds supply, prices rise – in this instance the demand grossly exceeds supply and prices are rising faster than the normal three percent per annum.

The underlying philosophy there is not to increase or reduce supply; it is to reduce demand by denying income to a significant category of Americans – working men and women. The less disposable income, the less demand there is. That is why Mr. Powell and his fellow Federal Reserve members focus on the employment and unemployment numbers. Think about that for a moment. And think about where the burden of that philosophy lies.

It’s not that it doesn’t work because it does. But it has always resulted in a “hard landing” because of the time lack between cause (rate increases) and effect (unemployment). Because no economists, let alone the government economists, have a crystal ball, it is likely that the Federal Reserve will continue increasing the discount rate even while its previous increases are working their way through the job market. Inevitably, the longer and steeper the rate increases the larger the gap will be and the harder the landing will be.

And again, that hard landing will fall most directly and for the longest duration on working men and women. It will have little effect on the elites of government and industry because their employment and that portion of their income necessary to sustain their lifestyle will remain intact and beyond the reach of either inflation or recession. But working men and women have already experienced a fifteen percent reduction in the value of their earnings since January of 2021 due to inflation and nearly twenty percent decline in their savings and investments in 2022 due to the stock market decline. Add to that the fact that the housing market is stalling in part due to increased mortgage rates. And when working men and women suffer such losses it means difficult choices about essentials. In contrast, the elites of government and industry while suffering paper losses do not suffer a loss for essentials since their incomes usually greatly exceed their necessities.

This inflation and recession were caused by the government. First, there was too much money pumped into the economy during the COVID pandemic. The first round was absolutely necessary. The second round was probably too much. Both of those fall on former President Donald Trump’s shoulders. The third round and everything thereafter grossly overloaded the economy. Mr. Biden didn’t have to do them. But like most things he does it was the announcement, the camera shot and the sound bite that was all that mattered. The long term consequences were simply not on his radar. And while he may preen about helping the working men and women he has singularly created the severity of the conditions that are now going to punish the working class in spades. Mr. Biden is an idiot and so are most of the people around him, including Treasury Secretary Janet Yellen who sold her remarkable accomplishments as the former head of the Federal Reserve for an appointment and a cheerleader for the worst economic mess in over five decades.

Who is looking out for the working men and women? Well, not Mr. Biden. Not the Democrats in Congress. Not that nit-wit Rep. Alexandria Ocasio-Cortez (D-NY). And the Republicans have, thus far, failed to step forward with a cohesive plan to soften the blow to the working men and women.

I’m not arguing for a transfer of wealth. Rather I am arguing that actions taken to by the government should not fall most harshly on working men and women – particularly since the inflation, the recession and the investment losses are all caused by the poor choices of Mr. Biden and his administration. And they are made more aggravating by the consistent refusal of Mr. Biden to change course in order to ease the economic pain on working men and women.

Here are just four things that Mr. Biden can do with or without congressional approval:

1. Reverse all of the decisions by Mr. Biden that have effectively ended America’s energy independence. Liberals/progressives are just going to have to get use to the fact that the alternative (green) energy while technically capable of producing renewable energy suffer from the fact that they cannot – even in the next twenty years – cannot replace the current sources of energy garnered from fossil fuels, hydroelectric generation, and nuclear generation. You can argue all you want about whether renewable energy is good, bad or indifferent – what you cannot argue with is the availability of supply and delivery. It just isn’t there. Reigniting energy independence will lower the cost of energy dramatically as well as lower the price of everything produced by fossil fuel energy and as product and by products of fossil fuels.

2. Sweep up and repurpose all of the funds previously appropriated by Congress that to-date remain unspent for COVID relief, economic stimulus, and other massive spending projects championed by Mr. Biden and accepted by the Democrat controlled Congress. Current congressional appropriations exceed available revenues by over a Trillion Dollars. That in turn causes the federal government to issue additional bonds which the Federal Reserve purchases with funds generated by printing additional money – the very thing that caused the current out-of-control inflation – well that and the disastrous decisions by Mr. Biden to end the nation’s energy independence. Mr. Powell and the Federal Reserve can raise rates until the cows come home but so long as Mr. Biden continues to increase deficit spending, as he has done so far, such rate increases will not stop inflation.

3. Cancel the Public Service Loan Forgiveness plan (PSLF) – the so-called student debt forgiveness recently adopted by Mr. Biden. This plan was never authorized by Congress and, therefore, it can be canceled by executive order just like it was created. According to Politico the plan is estimate to cost $24 Billion dollars and this is just the first installment. Work is already underway by Democrats to extend the program to total debt forgiveness rather than just the first $20,000. And from where does the money come? Well that’s the secret. Neither Mr. Biden nor the Congress have the authority to cancel debt to private enterprises. In reality this is not debt forgiveness; rather it is a transfer of responsibility from the student to the federal government. And once again, because the current appropriations already exceed available revenue, the government will have to issue bonds to cover its cost – the Federal Reserve will have to print money to pay for the purchase of the bonds and that will exacerbate the inflation problem by pumping more money into the economy – too many dollars chasing too few products and services (inflation).

4. Eliminate deficit spending. Deficit spending is the primary cause of the inflationary cycle. Yes, I know that we have been utilizing deficit spending for decades without causing such a major upheaval. But we have treated deficit spending much like we treat mortgages on a home. As your income increases, your ability to fund a larger mortgage becomes more certain. So long as there is a balance everything is manageable. However, if you borrow more than your ability to pay all hell will break lose. That was the basis of the housing crash that triggered the Bush/Obama recession. For the time being an elimination of deficit spending until we reach that equilibrium again will do as much as anything to bring down inflation – particularly if excess revenue is targeted to the retirement of bonds previously issued to cover deficit spending. This is what is known as reverse quantitative easing and the result is that it reduces the money supply.

This is a unique recession and one that may be resistant to Mr. Powell’s favorite measurement – unemployment. There is still a significant gap between job openings and people available for work. And while the unemployment numbers remains relatively low, and the available job openings remains relatively high, there is a stubborn drop in the Labor Participation Rate which means that fewer Americans are willing to work. All of that must change. Maintaining a strong workforce is one of the keys to overcome the current inflation/recession. Growing the economy coupled with reducing the money supply is the short answer to a complex problem.

And while the recession/inflation is real, the politicians continue to deal with it at arm’s length because they remain immunized from its effects. If we stop paying these morons until they can provide a viable solution you would be surprised how many of the four items listed above would be tackled and approved overnight.