The galloping inflation of the Biden era that some economists and pundits have said contributed to the collapse of Silicon Valley Bank and the other banks forced into
receivership this week. By way of comparison, inflation (distorted by pandemic spending) averaged 2.2% during Trump’s term and was 1.3% when he left office.
As our friends at Americans for Limited Government explained, this level of inflation is down slightly down from 6.4 percent a month ago.
Among the principal drivers were:
* a 9.2 percent increase in fuel oil
* a 5.8 percent increase in new vehicles
* a whopping 12.9 percent increase in electricity
* a 14.3 percent increase in utility (piped) gas service
* a 9.5 percent increase in food
* an 8.1 percent increase in shelter
* a 14.6 percent increase in transportation services.
Plus, a 3.3 percent increase in apparel, a 3.2 percent increase in medical care commodities and a 2.1 percent increase in medical care services.
This level of inflation – concentrated in those sectors of the economy serving America’s working families is devastating to their monthly budgets, but the cure – unemployment – may be far worse.
As ALG’s Robert Romano explained, “In recessions, peak inflation and employment is usually followed by a drop in overall inflation and a subsequent increase in the unemployment rate, with the process averaging about 15 months in the postwar period and a range as few as 3 months to as many as 39 months, according to Bureau of Labor Statistics data…
“The choices appear to be higher rates now, followed by more unemployment, or even higher inflation later, necessitating even higher rates and potentially even higher unemployment later. A recession is already baked into the cake. Choose your poison.”
Democrats would like you to believe that corporate profits are somehow responsible for inflation, but this is complete nonsense, so what’s the cure for Federal Reserve policies that bring recession and the swings between inflation and unemployment?
In a column for the American Spectator, Arnold Steinberg reminded us that Nobel Laureate Milton Friedman, the legendary free market economist and monetary guru proved that (a) government, not the free market, is the source of, or exacerbates, economic instability — recessions and depressions, even the Great Depression. Friedman explained that (b) central banks like the Fed can be the cure worse than the disease. And (c) the Fed and its chairmen are inherently fallible, so that (d) Fed policies inevitably oversteer a roller coaster.
Friedman concluded that only a known, non-discretionary modest annualized increase in the money supply can reliably support a free market economy, without otherwise inevitable government-induced chaos.
Mr. Steinberg observed it’s time for Republican leaders to stop looking in the rearview mirror and think outside the box. That is, extol free market economics relentlessly along with a nonstop populist attack on the Fed and its monetary policy. And make Biden own the unpopular high interest rates, as well as Inflation, inextricably linked with his regulatory web, disastrous fiscal policy, and now his preposterous new budget. Pursue Hunter Biden, Anthony Fauci, Pete Buttigieg, et al., but at intermission or halftime.
Biden cannot unring the bell, concluded Mr. Steinberg – and we agree. He and he alone did something no one else has done in four decades: he unleashed the inflation genie, an inflationary neurosis, if not psychosis — the reinforcing expectation of higher prices, so everyone tries to stay ahead of the game, and cause-to-effect-to-cause. A Fed-induced recession will only reduce the rate of inflation, not return prices to the status quo ante. In other words, the cost of living in 2024 will remain significantly higher than when Biden took office. Get it?
federal budget deficit
Chair Jerome Powell
Silicon Valley Bank