Our Precarious Economy
The people in charge of our government seem to be clueless when it comes to matters of economics.
Likely that ignorance is the major factor in why we currently sit on the precipice of a deep recession.
The impending recession is not due to the normal, business cycle associated with capitalism which by itself goes through the expansion and slowdown of GDP.
No, what’s happening to our economy today is not normal. It’s not the result of capitalism.
It’s the result of a combination of ignorance and ideological folly.
Let’s deal with ignorance first.
When Congress is considering its appropriations across a glut of programs, you don’t hear about anyone asking the needed questions of whether we can afford the funding required.
We crossed the breaking points of non-consideration of the impact on the national debt some 20 or so years ago when our debt began to balloon. There are no priorities set up for funding, so we find the government just spending money it doesn’t have to continue expensive programs and adding on new ones.
We all know what has happened in this irresponsible scenario – the government just prints the money to pay for whatever it decided to spend. Further, the question of raising the approved debt ceiling is delayed until after the spending is in the pipeline.
It’s obvious the financial system (and decisions) our government is using is upside down and backwards.
The tipping point for runaway inflation was reached in 2021. After creating/printing gobs of money and pumping it into the economy, there was too much money chasing products and services. Inflation resulted – an insidious tax – and its always difficult to get under control once it starts.
Monetary policy dictates that to tame and control inflation, the Federal Reserve must raise interest rates. Doing so is aimed at slowing down an economy. But that also involves the danger of wrecking it – meaning layoffs and financial stress for many citizens to meet basic needs. Under normal conditions raising rates is meant to slow down an economy that is overheating. That’s not the case now.
Raising interest rates lowers demand for loans – by businesses and individuals/families – and therefore slows, even quells, economic growth. Further, it lowers the face value debt instruments, i.e., bank loans and treasury and corporate bonds.
For example, a $1,000 US treasury bond maturing in one year, paying 2% interest is worth less than $1,000 when the going interest rate is 5%. If you want a 5% return on that bond, you will only pay $970 for it. And the Fed has bought a ton of treasuries (creating a false market for them). The banks get those treasuries added to their reserves (capital) and make loans based on them fueling the economy (and creating money).
Increasing interest rates lowers the value of those treasuries because those treasuries are paying interest below current rates, meaning the banks’ reserves have less value. When those reserves are less than the outstanding loans any bank holds, the bank is considered insolvent.
So, on top of runaway inflation ‘taxing” the average household, we now see an impending crisis with many, major banks.
So why is that germane to the ignorance topic? Because I would surmise few if any of our elected officials considered the domino effect and far-reaching impact of eliminating our energy independence along with their ‘drunken sailor’ spending. They’re ignorantly wrecking the economy – which, unfortunately, they have the power to do.
Let’s look now at the ideology problem.
When this administration took office, it decided it would be the first “green energy” White House. From day one when it shut down the Keystone pipeline from Canada to banning new oil and gas exploration and development leases on federal land, it has made the prices citizens pay for gasoline, diesel, and fuel oil soar. That climate change ideology sparked inflation from the get-go.
Then, in the wake of soaring energy prices, the administration, with a friendly, accommodating Congress, proceeded to pass legislation that added trillions in expenditures without the revenue to cover it, meaning the money was again just created by printing it.
That result increased the money supply to the point where inflation hit 9.1% in June 2022.
This spending wasn’t caused by any pandemic or war, it was done based on ideology.
The ideology of climate change and the focus of ‘equity’ vs. merit’ plus weak foreign policy have dominated this period leading to an economy that is on the brink of collapsing.
Despite President Biden’s efforts to convince OPEC and its members to increase the world supply of oil and gas while eliminating our own fossil fuel independence, it hasn’t happened.
Un-affected by that failure, he has stoked the Russian-Ukraine war – negatively affecting the value of the dollar, sold millions of barrels from our strategic oil reserves, and continues the blind support of electric vehicles – both the manufacture and ultimate purchase thereof. Further, his recent “infrastructure” bill will build some 500,000 electric charging stations across the country.
It’s obvious to most people operating without ideological blinders on that the electricity to power these vehicles must come from fossil fuels for at least the near-term. While ignoring the prospect of clean, nuclear power, the ideology of solar and wind dominate the rhetoric.
In summary then, economists know we have an economy that’s starting to teeter because has been badly shaken by the removal of a sound foundation of proficient fiscal and monetary policies.
Instead, the impact of ignorance and unsubstantiated ideology has dominated decisions, made by incompetent, partisan leaders. They are apparently unaware of the required ‘price’ that will be paid for what they’re doing.
As if by some cruel “let them eat cake” design, that price is being paid by the middle- and lower-class citizenry.
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Have a great and prosperous week.
Hug somebody.
SPIDER Bites
Trivia question of the week: Alaska became the 49th state in 1959. What was the 48th to be admitted and in what year? Answer to last week’s how many bytes in a gigabyte: one billion. BTW, a byte is usually made up of 8 bits, normally used to represent a character of text.
As we witness more ‘purchases’ of troubled banks, i.e. Signature by NY Community Bank and Credit Suisse by UBS, and the infusion of cash to First Republic by a group of Goliath banks, the die is cast for more smaller, regional banks to be merged with/purchased by larger ones. We could see as few as 6-7 US banks operating in the US by year end. And with this administration promising to cover all depositors regardless of deposit size, it has taken a huge step toward nationalizing our banking system. That in turn makes it easier for the Federal Reserve to switch from currency to crypto. That in turn would bring each bank and depositor under the control and whims of the government. It certainly makes people like Bernie Sanders happy. Scary stuff.
The Fed decided last week the threat of recession and bank failures were better choices than inflation and raised the interest rates another quarter basis point. The choice between two rocks and a hard place is difficult to make, and no-win.
President Biden vetoed his first bill last week. The bipartisan bill would have removed a new Labor Dept. rule encouraging investment fiduciaries to use ESG and climate change ideologies in making investments with people’s retirement funds. People, those whose money they’re talking about, apparently are to have little to say about how and where their money is invested.
As China’s Xi visited Russia’s Putin last week to cement a new partnership, the Chinese leader called for a ceasefire in Ukraine. The Biden administration, via White House National Security Council spokesman John Kirby, immediately rejected the idea. The US apparently has that power, not Ukraine’s Zelensky who has become our proxy war puppet. So, the ‘war is hell’ killing will continue indefinitely while we drive the first alliance between Russia and China into reality. That used to be a no-no, but that’s our currently flawed foreign policy.
Speaking of foreign policy, Saudi Arabia reopened diplomatic relations with Iran last week after 7 years of severed ties. The Middle East is regressing to its former blind hatred of Israel after several years of opening relations with that Jewish country. Oh, the Saudi-Iran deal was brokered by China in Beijing. Our leaders have their misguided, ideological blinders on. Can we stop another 911 with porous borders?
NY DA Bragg canceled his grand jury meetings last week to the chagrin of Donald Trump.
Remember Greta Thunberg, the then 16-year-old Swedish climate change alarmist when she addressed Congress in 2019? She took every Friday off school to protest at the Swedish parliament the lack of action. Now 20 years old, she has been awarded an honorary doctorate in theology from the University of Helsinki. Now she has God on her side in the congregation of climate change.
