Usually I try not to say: “I told you so.” But in this instance the consequences of neglect and deliberately misleading statements by President Joe Biden, Federal Reserve Board Chairman Jerome Powell and Treasury Secretary Janet Yellen are so devastating that it has to be said – not once, not twice, but every time that Mr. Biden refuses to back away from massive deficit spending and/or Mr. Powell engineers yet another increase in the federal discount rate or Ms. Yellen just opens her mouth. This is about inflation and the flailing and impotent responses by those mentioned above. This is about deficit spending on steroids. This is about three people – one cognitively challenged and two more concerned more about their titles and the administration narrative than about the economy and the working men and women of America.
But let’s back up for a minute. Inflation is the result of an imbalance in the economy. The bloated money supply was caused first by President Donald Trump’s second round of stimulus after the COVID-19 pandemic and the government’s decision to shut down the economy. A stimulus may have been needed but given that there had already been a fairly substantial stimulus by Mr. Trump, the size of this second one was significantly overstated. It was followed by Mr. Biden’s massive and unnecessary stimulus spending that was used primarily to reward his supporters (public employee unions, alternative energy producers and big business feasting on government contracts). To accomplish this massive deficit spending the United States Treasury (overseen by Ms. Yellen) issued government bonds. Lacking a real market for the bonds, the Federal Reserve System purchased the bonds and printed additional money to pay for them. The result was a massive over supply of money into the economy – too much money chasing a static number of goods, voila prices rise and inflation is upon us.
Everybody who has taken Economics 101 knew this would happen. Apparently, everybody except Mr. Biden, Mr. Powell, Ms. Yellen and Ms. Ocasio-Cortez*. No, that’s not true. Mr. Biden didn’t know because he cannot understand it. Ms. Ocasio-Cortez didn’t know it because she is an air-head. But Mr. Powell and Ms. Yellen absolutely knew and not only remained silent but followed the administration’s narrative that the inflation was “transitory” and would return to normal in short order – which was all baloney but was recited as true by the Democrats’ allies in the mainstream media. Whatever the reason, Mr. Powell and Ms. Yellen waited nearly a full year before beginning to tackle the problem. By the time Mr. Powell and Ms. Yellen began the series of interest rate increases, the inflation was in full bloom and had already increased the cost of living by nearly 8.5 percent and nearly 10.0 percent since Mr. Biden took office in January of 2020. It was a mess created by Mr. Biden and made worse by Mr. Biden’s minions in the Democrat Party, including Mr. Powell and Ms. Yellen. And yet to this date, Mr. Biden, Mr. Powell and Ms. Yellen refuse to accept any responsibility for its cause or acknowledge that the massive deficit spending was the source. In fact, Mr. Biden is so clueless about the cause and effect of deficit spending that he has proposed even more and greater deficits for 2023.
Now here is the rub. At any time during this inflationary cycle and the myriad of interest rate increases, Mr. Powell could have stopped the cycle in its tracks. Had Mr. Powell told Mr. Biden, had told Ms. Yellen, had told Senate Majority Leader Chuck Schumer (D-NY) and/or then-Speaker of the House Nancy Pelosi (D-CA) that the Federal Reserve would not print additional money to buy the bonds issued by the Treasury Department to pay for the deficit spending, the inflation and the deficit spending would have ended immediately. Or, Ms. Yellen could have told Mr. Biden that she would resign rather than issue additional Treasury bonds to pay for the deficit spending. But neither did.
Instead, Mr. Powell and Ms. Yellen began the series of rate increases with the specific goal of causing an increase in unemployment. In their monetary theory, they would recognize that inflation was easing when more people lost their jobs, lost their incomes and in many cases, lost their homes, the motor vehicles and their life savings. Ms. Yellen and Mr. Powell are part of the Washington insiders. And they are not just insiders, they are important insiders. Their limos are always waiting for them. Their telephone calls are always answered. Their requests for television time are always honored and that time is seldom confrontational by the mainstream media. The cocktail invitations and dinner reservations abound and they are never turned away. They, like Mr. Biden, exist in a carefully construct cocoon insulated from the effects of their own decisions. In fact, so blessed are they that even upon termination of their appointments they will enter the “rubber chicken” circuit and garner millions of dollars in speaker fees, boards of director’s fees and book royalties. They will never suffer the indignities of those who have lost their jobs because of these noblesse oblige decisions.
But a funny thing happened on their way to the disastrous cock up they have created – job losses have not occurred as they intended. In fact, unemployment is at an all time low and job creation occurs monthly at robust rates. These two learned morons have underestimated the strength and resilience of the American economy and, more importantly the strength of American enterprise. Oh, it will work at some point but Mr. Powell and Ms. Yellen will have already sown the seeds for a looming recession. You see the lag time between raising the rates and creating the unemployment they intended is unknown – and that is because it will differ based on the underlying strength of the economy. However, given the fact that Mr. Powell and Ms. Yellen have raised the Federal discount rate to its highest level in over forty years already suggests that they have already gone too far and thus the consequences will be more difficult. (Note to Mr. Powell, forget about any of this BS about “soft landings” this recession is going to be long and hard.) Add to that the “money supply” rate has been dropping. Rueters, in a March 30 article indicated that the money supply was falling it its most rapid rate since 1930 (the prelude to the Great Depression). In fact, the current money supply figure of $20.9 Trillion is down from its April, 2021 high of $22.0 Trillion.
But even at that, Mr. Powell’s efforts at raising the federal discount rate are not working precisely because Mr. Biden continues to insist on more and more deficit spending – the actual source of inflation. It is the moral equivalent of Mr. Powell trying to pump water out of the pool while Mr. Biden is busy pumping water into the pool. The incompetent being confronted by the impaired.
The single most important decisions that Mr. Biden, Mr. Powell and Ms. Yellen can make at this point are 1) stop deficit spending, 2) stop issuing treasury bonds to finance the deficits, 3) stop printing money to purchase the new treasury bonds if they are issued and 4) stop raising the federal discount rate. Stop. Just stop. Let the very robust American economy that underlies all of this tilting at windmills catch up. Yes Virginia, you can grow your way out of inflation instead of shrinking the economy by massive and indiscriminant unemployment.
But don’t expect that they will. After all, these moronic decisions that they have been making are all about politics without actual consequences to them personally so there is no impetus to act rationally.
* Ms. Ocasio-Cortez has a degree in economics from Boston University. Either the university should ask for the degree to be returned or the National Accreditation Institute should re-examine its approval of the university.