The timing could hardly have been better. Just as Democrats roll out their massive, partisan $3.5 trillion spending package, a mammoth bill that comes on top of all normal spending and seemingly countless trillions in COVID relief money under Presidents Donald Trump and Joe Biden, a new economic report shows inflation spiking to alarming levels.
According to the Labor Department, consumer prices jumped 5.4% year over year after their largest monthly gain in 13 years.
Bad as that is, it gets worse. Economists often measure inflation excluding energy and food prices because these tend to ride volatile and unpredictable commodities markets up and down. But by that measure, inflation is rising at its fastest clip in 30 years. …
The Trump era was remarkable because, for the first time in modern memory, it produced real wage gains for lowly workers. Inflation is now undoing that progress. …
The fix is in:
Despite their zero-margin control of the Senate, Democrats are governing as though voters had given them a massive majority that justified dispensing with negotiation and bipartisanship. In an inflationary economy, they want to borrow and spend even more money for ideological goals that are irrelevant at best and damaging at worst to the vigorous economic recovery that Biden inherited upon taking office.
All of this talk about transitory inflation is a ruse. Even worse, despite what the markets seem to think, there’s nothing the Federal Reserve can do about it. …
It is certainly possible that we can finish 2021 with 10% CPI, which would rank it as bad as any of the years that we had during the 1970s. Except 10% in 2021 is not 10% in 1971 or 1979 because this is not your grandfather’s CPI. This is a completely different CPI that is completely rigged and reverse engineered. If we actually have 10% inflation, if we measured prices the way we did back in the 1970s, it’d probably be 15 or maybe 20% inflation.”
The bottom line is that we are currently enduring a rising cost of living comparable to what we experienced in the 1970s with the potential for it to get much worse. …
The Fed cannot tighten monetary policy. Governments, corporations, and house buyers have borrowed historically gargantuan amounts (due to recent low interest rates), and cannot afford to pay their interest bills if interest rates return to normal levels. For instance, the Japanese Government would need to use its entire tax revenue just to pay its interest bill if the rate on Japanese bonds were to rise to 2%.
The Federal Reserve does not think inflation is actually transitory. I think it knows that it’s not transitory. It just knows not to admit that because it also knows that it can’t do anything about it.
If the Fed could actually do something about inflation, it would have already done it.
If they could have nipped it in the bud, they would have done it. The reason they haven’t done it is because they can’t. And because they can’t fight inflation, that’s why they have to pretend that it’s transitory.
We need to run a 1970’s style inflation policy for one to two decades in order to bring debt levels back down to historic norms. Perhaps this long-predicted (by me) process has begun.
Stephen Green: The White House let it slip that ‘temporary’ inflation could last years:
Others in the administration’s orbit are also weighing in. Jason Furman, who served as Barack Obama’s economic advisor, tweeted out a graph showing the large gap between core inflation in the U.S. and Europe.
He called it a ‘MASSIVE divergence of inflation between the US and Euro area right now.’
If the current inflationary surge were due solely to global COVID-related problems like lockdowns and supply-chain bottlenecks, you would expect core inflation to be about the same in the U.S. and Europe.
But if, say, Presidentish Joe Biden was doing literally everything wrong — like pumping the economy full of liquidity while crushing growth and innovation — you’d expect the U.S. to have much higher core inflation than Europe does.
Every country in the world aligns its monetary policies to the US, because otherwise their currency risers or falls too much — which is disruptive and painful. So, if the US is going into a period of 1970s inflation, so are the rest of us.
Reminder of debt levels to 2019: