The constant meme, mainstream or alternative media, seems to be that 2022 is all about major changes – both those which happened in the first half of the year (almost over) or will supposedly happen.
Now, astute (and the few “woke”) readers will condemn TPOL for using “dead end” in the title. (Have you noticed the “dead end” signs are being replaced by “no outlet” because “dead end” is politically incorrect and encourages suicide?)
But all the choices the States have this year seem to lead, if not to death, certainly a whole lot of destruction. Inflation? Supply chains? War in Ukraine? War on Taiwan? Pro-abortion riots and assassinations? Anti-abortion killings and mob violence? And on and on.
Right now, let us talk about economics – inflation and other fun stuff. Including (whisper it so the government bugs have a harder time hearing it) recession.
Summer is here, but inflation is hotter. In May, the Consumer Price Index (CPI) hit a 40-year high of 8.6 percent. Oh, the Federal Reserve tells us they are battling like crazy to cool these numbers, but business and consumers aren’t seeing relief. (And folks as LewRockwell.org and FEE.org are telling us the Federal Reserve is accomplishing nothing – nothing good, at least.)
BUT the Fed is doing nothing good very quickly right, and they are seeking to “normalize” their (US (c) 1914) monetary policy. But, oh my, there is a problem! They cannot, of course, produce more food or oil (of course not: they are bankers and government goons). So… they plan to rein in runaway prices by restricting demand. Even they are not stupid enough (yet!) to do that by rationing. (Though Berlin is.) So they will intentionally slow economic growth. Hear that? The rapidly approaching howl of RECESSION! Which in turn explains why the financial markets seem to be going crazy recently.
We are now at a crossroads. Or multiple forks in the road. On one hand, we have financial gurus – even very conservative and a few liberty-loving ones – who say that the evidence is that the U.S. economy is strong enough to withstand some deceleration. And NOT slipping into recession. This is what the Fed calls this a “soft-landing” and there are big reasons (constantly shifting variables) to doubt this:
- LABOR: The labor market remains tight, with unemployment rates still sitting near historic lows (according to the statistical liars at FedGov, at least). As the Fed starts tapping the brakes, businesses will respond to falling demand. However, there are currently far more job openings than officially-unemployed people. Does this mean we have some slack to eliminate before meaningful job reductions are likely to commence? That IS the Fed’s goal. If that happens, there MIGHT be some moderation and so a relatively strong labor situation, making a recession less likely.
- LABOR 2: The longer inflation sticks around, the more embedded in wages and union contracts it will be. (UK teachers are already demanding 50% pay raises!) If so, whoops! There go corporate profit margins. Result? The labor market could deteriorate further than planned, raising probability of a recession AND it being more severe.
- CORPORATE Earnings (and Stupidity) Growth: Lots and lots of corporate borrowing and extending debt prior to the recent rate hikes. So, very generally, U.S. corporations are flush with cash. This is good for them, because they will not have to borrow as much of more costly cash (much more expensive interest-rates). Therefore, they can continue to invest in their businesses and expansion.
- CORPORATE 2: How long will inflation last? That’s important. Businesses generally contract for the future delivery of goods. So, prices must be forecast. Higher prices in contract terms could offset the advantage of the early borrowing and dim economic prospects.
- HOUSEHOLD Savings: After the Pandemic Panic, abig consumer story was that households were saving more money than ever before. Yet it is noted that savings rates have fallen in recent months. (Maybe because a “reopening economy” means people can finally spend freely again? Or is it government-itis: don’t worry be happy, spend!) It seems that Ami households are sitting on an estimated $2.3 trillion in total savings, an asset to ongoing economic growth. (That people like Peter Zeihen disagree with.)
- HOUSEHOLD 2: Once more we must ask (and NOT Uncle Joe), how long will inflation last? This is key, because higher costs will accelerate the drawdown of these cash cushions. Too quickly? Smaller nest eggs to support ongoing spending, particularly if the labor market is hurt, thus increasing the odds and magnitude of any downturn. (Which may happen for purely demographic reasons: we are getting old!)
SO the gurus say, if inflation begins to moderate while employment remains strong, corporate earnings keep growing, and household savings hold up, we will probably avoid recession. But if inflation persists long enough to materially impact jobs, impair corporate profitability, and reduce household savings, a recession becomes the most likely result.
And as the people over at FEE remind us, more than 100 years ago, Ludwig von Mises explained recessions and how they are ESSENTIAL to heal a broken economy! NOT having a recession this year just delays the inevitable, and makes it worse and worse. Because we DO have a broken economy, courtesy of government. Yes, we have plenty of resources, but it is the AVAILABILITY of those resources that is the deciding factor, so the bet needs to be on recession.
So, recession or no recession, hard or mild – or even stupid (government and corporate) decisions turning it into a depression? No good choices: dead end likely. UNLESS we get off the road to ruin.