Last summer, President Biden and senior members of his administration took to the podium to advise us not to worry about rising inflation, assuming it would be “temporary.” Whether that assessment came from his political or economic advisors may never be known, but we now know the truth. Fast-forward to the present, and fears of a recession are mounting, but our President and his top government officials are back on the airwaves to reassure us by saying that a recession “isn’t what we’re seeing now “. Although there have been two consecutive quarters of negative GDP growth – which is the accepted standard definition of a recession – the White House has publicly denied it. Meanwhile, inflation continues to climb, with the latest figure topping 9% annually, and increases in critical food and energy sectors are much higher. Rental prices for apartments are also rising sharply. Some of us can handle it. However, many cannot.
But don’t worry because now the Democrats have introduced what they are calling The Inflation Reduction Act of 2022. It requires about $430 billion in new spending over 10 years, much of which is focused on their climate-related agenda (including extending tax credits on high-budget electric vehicle purchases for people who spend up to $300,000 per year through). The last time Congress put money into the economy, we got inflation. I wonder if the people calling this law are the same ones who called this inflation “temporary”. At the very least, this is disingenuous to the extreme: identify the most pressing political issue they face and demand a completely independent grand spending account as a cure. You have published a financial report showing a revenue component for this invoice. But since a large chunk of the tax increase goes to businesses, they ignore the fact that businesses are simply passing the increased costs, including tax increases, on to consumers, leaving us all to pay. They claim significant additional revenue from improved IRS enforcement and beg the question, if all that money is out there, where has the IRS been all this time?
When there are revenue increases, we can count on this government to spend everything and more. Not to mention, we’ve yet to hear the Congressional Budget Office’s assessment of the overall impact of the bill. Deficit and debt reduction will remain pipe dreams.
Just this week, the Minneapolis Federal Reserve chief said inflation was “spreading more broadly across the economy.” More specifically, he said: “It’s very worrying. We keep getting inflation readings, new data that just came in last week, and we keep getting surprised. It’s higher than we expect.” Other senior Fed officials, including Chair Jerome Powell, said the Federal Reserve is “very heavily” focused on inflation and will do whatever it takes to bring it down to an annual rate of 2% . That’s a huge drop, especially considering the rate has gone up. Translation: Interest rates are likely to go much higher. Higher interest rates restrict investment and spending, constrain mortgage lending and housing construction, and slow economic activity. When economic activity slows down, that’s a recession. Inflation coupled with recession will be catastrophic for many people. First you can’t afford to pay your bills, then you could face losing your job.
While the White House combs the dictionary for obfuscations and euphemisms, economists speak plain language. Consider what Harvard economist Kenneth Rogoff said in a May interview: Once inflation “gets out of control,” it won’t be easy to “get it back under control.” He also said, “If [the Fed] If we have to raise interest rates that much, it will undoubtedly trigger a recession.” And just this week, Lawrence Summers, former Democratic Treasury Secretary and Harvard University president, pushed the thought in a statement co-authored with two esteemed colleagues predicted that a “substantial rise in unemployment” might be needed to fix this economy.
OK, let’s finish the ending. The Federal Reserve sees inflation continuing to rise and is “acutely” focused on bringing it down. The only tool they have is control over interest rates, which they are raising dramatically right now, and more hikes will follow. And we are warned that if interest rates get too high, a potentially severe economic contraction is imminent.
So who has more credibility in these conflicting versions of reality? The clear-eyed economists and policymakers in the Federal Reserve? Or the shameless deniers and cranks in the Democratic Party who continue to insist that if we just trust them and spend more money on their pet ideas, everything will be fine?
If any of you have money left over after paying your bills, I suggest you bet on the Fed.
Ken McCord from New Castle is a retired small business owner with a keen interest in contemporary affairs.
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