Federal Reserve Chairman Jerome Powell’s stated purpose for dealing with inflation was to raise the discount rate high enough to reduce investment and trigger an increase in unemployment. In the quarterly reports of many of the largest companies, advice that there will be a reduction in capital investment serves as a warning that the cost of borrowing has become too high and that production and sales can be expected to decline in future quarters of 2023. With the announcement of massive layoffs at industry giants such as Amazon, Microsoft, Google, Facebook, Goldman Sachs and Compass the increase in unemployment appears to be right around the corner. Tuesday’s edition of the Wall Street Journal, appears to dedicate its second section Business & Finance to a catalog of the misery that is being felt across all levels of business and employment – a slump in memory chips, industry leaders slashing production, real estate fallouts from tenant bankruptcies, and banks bracing for bad real estate and consumer loans, all following the front page lead story relating to a reduction in consumer spending. Mr. Powell’s strategy appears to be working. However, the consequences of those actions are going to be devastating to working men and women. Not so for the barons of Wall Street who, absent a severe recession, will weather this storm with little damage and significant opportunity as the economy rebounds from the both the current inflation and the likely recession.
Okay, right here I need to suggest that those suffering from a teachers union led education in the Portland Public Schools stop reading and return to your gender studies because what comes after will be Greek to you.
Free market economies expand and contract based on supply and demand. Government run economies seldom expand but contract regularly based on the ineptitude of the bureaucrats who run government offices. Remember the old adage: Those who can do, and those who cannot become bureaucrats and tell those who can what they are allowed to do. Today’s inflation and recession fall in the latter category.
The only supply and demand issue here is the money supply – an issue that only the government can effect. In this instance President Joe Biden (D), and to a lesser extent former President Donald Trump (Rep), engaged in a series of “stimulus” spending packages, all aided by a willing Congress in the first two instances and the Democrat controlled Congress in the latter instances. The package in the first instance was appropriate given the economic collapse due to the government reaction to COVID-19 and its insistence on shutting down our economy. The package in the second instance was marginally appropriate but grossly over done. (It was the moral equivalent of knowing that two aspirin for a headache is good but deciding to take twenty just in case.) All of the stimulus spending thereafter was designed by the Democrats to reward their supporters as the expense of the taxpayers – the public employees unions, the green energy lobby, the abortion industry, and the electric car industry. In order to accomplish that Mr. Biden and the Congress engaged in massive deficit spending which then required the issuance of government bonds resulting in the introduction of trillions of new dollars printed by the Federal Reserve to purchase those deficit bonds – all without a single instance of increased productivity. (This is precisely the course that dimwitted Rep. Alexandria Ocasio-Cortez (D-NY) urged as if printing additional money had no financial consequences. It is at this point you have to ask yourself as to how it is that we keep electing and re-electing these financial flyweights.)
There is no easy way out. Mr. Biden as President and Mr. Powell as Chairman have put their blinders on and are hell bent on continuing the increase in interest rates with the full knowledge that this will reduce investment and employment – not just the full knowledge but rather the specific intention. Mr. Biden and Mr. Powell intend to crash our economy by stimulating a recession – that’s their only solution for an economic crises that they are singularly responsible for creating. Mr. Biden will not allow the reopening of Keystone XL pipeline, or the additional production of carbon based energy* or reduce spending, or repurpose unspent appropriations, or reduce future spending, or even reduce the huge burden of illegal immigrants – in point of fact they intend to increase all of them to do further damage the economy. Mr. Powell remains intent on continuing high interest rates although the increases may be less than previous quarters. This latter one is a puzzle because if you look at the month-over-month inflationary increases, they show a dramatic decreases in the inflationary numbers in the latter part of 2022: July- August (0.1), August- September (0.4), September – October (0.4), October-November (0.1), November-December (-0.1) or 0.18 on average or 2.16 on an annualized basis. And they stand in marked contrast to the previous six months which averaged 0.866 on a monthly basis or 10.4 on an annualized basis
The danger here is that the tipping point for inflation may have already arrived and yet we are continuing to fuel a likely recession by raising interest rates yet again. But this is the government and they neither know nor care about the effect on working men and women. They care only about that they not inconvenience the financial barons.
This is not going to end easily. There are going to be even more massive layoffs but now that working men and women have pretty much exhausted their savings and now their lack of financial reserves is really going to hurt. I recall when we moved to Oregon in 1985 the high tech industry was booming and employment was too. In many instances both spouses were working in the industry and they were celebrating the never-ending quarterly bonuses. But then Black Monday happened in 1987 and with it the quarterly bonus checks ended and then one or both spouses lost their jobs and with their savings exhausted and large mortgages on expensive homes they lost everything – it was a blood bath. And that is precisely what we are looking at again as Mr. Biden refuses to recognize his role and Mr. Powell’s myopia drives us closer to the cliff.
But don’t worry, neither Mr. Biden nor Mr. Powell will suffer because they are government employees and they are immune from the vicissitudes of life.
*Had Mr. Biden, in a pique of partisanship, not declared war on the United States carbon based energy industry the inflation likely would not have occurred because, with our energy sector intact, we could have largely grown our economy passed the excessive spending of Mr. Biden and the Democrat Congress. It is obvious that carbon based fuel produced elsewhere is just fine with Mr. Biden – Saudi Arabia, Iran, Venezuela, etc. – thus proving the lie that this was all about the environment. Drilling, transporting, refining and producing carbon based energy adds the same amount of hydrocarbons (actually more in the case of Venezuela) wherever it is extracted. That fact alone suggests that Mr. Biden is more intent on destroying America’s economy than he is with reducing carbon emissions.