The Nomad Economist
Feb 1, 2022
The biggest economies in the world were paying people not to produce goods and services (or just boarding them into their homes like in China) yet no idea why this inflation fell out of the sky.
Half the world is not working and the remaining half is unable to be as productive as they normally would be. Hence there is shortage of goods and services and higher inflation.
The incessant attacks on the Fed reserve to keep interest rates low despite rising inflation is ridiculous. While higher inflation will hurt a bit, higher rates at this time will hurt a lot and will quickly lead to a recession.
The Fed is going from one huge error (inflation is transitory) to another huge error (4 rate hikes and runoff won’t crash markets). The Fed’s job is the economy, not the stock market.
Sure, interest rates deflate assets. But they won’t do squat for consumer goods and consumption pricing. The stuff the 99% care about. The fiscal and monetary policies of the US have been inflationary for some time because. We haven’t stopped printing money since 2008 (other than the taper tantrum). Rates have been near zero or negative real rates.
Tariff increases and trade wars. Massive government spending and stimulus. Regulatory increases. Minimum wage increases in many states. Labor shortage due, yes to pandemic, but also an asset bubble that let boomers and some Generation Xers retire early.
Also, the labor shortage is not because there isn’t free daycare. People can only not work if they have money and the government has been giving it to them. Skyrocketing housing prices mean skyrocketing property taxes (inflation) as well as rising rents.
All of these factors built up to what allows the supply shortage from the Pandemic to create inflation. Most analysts just look at the last bullet point though. The Fed is the problem, not the solution.
THE CRASH IS THE ONLY SOLUTION.
The choice is between Too Big to Fail Institutions and the 40% renters with less than $1,000 at the bank This time either way Murphy’s law will apply .
Sounds like FED is now out of a magic bullet to manage the economy – They cut interest rates to near zero to stimulate the economy in the pandemic and flood the market with printed money, now they are tapering bond purchases and announce to raise interest rates above inflation rate sooner to control spiral inflation.
Inflation may be caused by many factors, not the amount of money only; price increase due to strained supply chain and labor shortage after a long pandemic while the economic recovery relies on consumer consumption.
If FED put the brakes so hard, it would affect the company’s ability to raise capital that in turn cut back hiring or even lay people off to be afloat, the consumer would not be willing to get a loan for their consumption and tighten their spending that would cause the economy to slow down further.
They will cause a full-blown recession.
Just like Gerald Celente says when they start hiking the interest rates, the markets will crash, it ain’t going to be pretty, this will be the worst financial crash the world has ever seen be prepared, it’s coming supplies are not being distributed by the truckers …
The Fed mandate is for “Price Stability”, not 2% inflation. Alan Greenspan said price stability meant ZERO inflation, if inflation was measured properly.
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