The Economy Big Picture.
By Gene W. Edwards.
There’s huge apprehension, confusion, and dread these days about where our present damaged economy came from, where it is now, and where it is going. I’ll summarize my thoughts on same, below.
They just reported that the average family is spending nearly $500 a month more now than it did a year ago despite wages being flat. Yeah, the inflation rate is running a steady 8.0%ish. Many businesses are adding to the problem by jacking up their prices so as to garner record profits on the pretense they are just passing along costs. Yeah, the wolf is not at the door: the wolf is in the house (the House?)!
Where did all that inflation come from? And the answer is obvious: spending; in particular, deficit spending, the “printing” of money with nothing to back it up but the good faith of all who use it, use the American dollar.
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What spending? We’ve added deficit to our National Debt for decades, almost uninterruptedly. JFK had a good positive-balance year or two, as did Clinton. All the rest of our in-our-lifetime presidents practiced “Borrow from Peter, pay Paul.” Go to usdebtclock.org and put it on your computer’s Favorites.” Our national debt is presently $31,465,000,000,000, equivalent to 157 rows of $100 bills laid end-to-end from the earth to the moon (each bill is 8” long, and the moon is about a quarter of a million miles away).
Let’s look at this year. Our national budget this year was $6 trillion and we only took in $4.9 trillion. The difference was added to our national debt, our public debt, financed by the sale of treasury bonds ongoingly sold to individuals, businesses, and other countries. That is supposed to be the safest investment unless the gallop of the market ox is replaced by the lumbering threat of the market bear and the market goes into hibernation or senescence because nobody believes in it.
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The time the markets fell equates to the start of the pandemic, which hit big time in America in March of 2020. Multiple spending issues started to converge. Trump ran record deficits his whole term, instituted massive tax cuts (overdid it) , and we lost the most dollars ever to factories abroad (called the balance of payments) — and then came the joblessness, unemployment payouts, and the COVID-19 stimulus bills.
Next came Biden’s spending bills packed with pork spending for green energy, chipmaking, and infrastructure, the Ukraine war, and a Democrat Big Government international agenda. Trump did his best to deny the pandemic and vaccines, and Biden did his “best” to impose vaccine sanctions to punish those who wouldn’t take the shots. I’d give most of those people amnesty now: their jobs back and back pay.
But COVID-19 is still with us as well as the RSV respiratory virus and the seasonal virus. We are still in the bad health woods and can’t see our way out because we can’t see the forest for the trees. It is the big picture that matters, not the histrionics of day-to-day government largess to pretend financial repair, allay your fears, and support you . . . a little.
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Now we look at the Fed (Federal Reserve) and banking. The Federal Reserve runs our money system by creating digital money out of thin air (paper and coin money are a drop in the bucket) and then charging its “Fed funds” rate when distributing it to banking institutions. That basis rate today runs 3.80% to 4.05%. Think 4%. For instance, a bank get money at 4% and then loans it out at 7.3% for a 30-year home loan. Likewise, if you buy a car, etc. The difference is profit.
My favorite money spokesman is Larry Kudlow, a market maven. He runs a talk radio program. He and I believe, and many others believe, that when the Fed funds rate hits 5% and above, the financial (equity) markets will react sharply in the direction of recession or depression. We’ll see.
I don’t think the Federal Reserve, banks, and our Congress know what they’re doing. Many in those professions never worked for a living. They just took classes, interned, or worked in an ivory tower bank or political atmosphere. They don’t know what real work is, or human sweat, or the trading of real production for real value in return. They have theories about the money supply but don’t understand how money really works. Banking is a huge sector of our economy, banking based on borrowed money.
Here’s how money really works. Let’s say we don’t add any money to the amount of our money in circulation, including around the world. We just move money around. Everything is stable in such a model. But when we run new budget deficits from federal overspending, quantities of money are moved out of the country to pay foreign manufacturers, and bandages are applied to John Q. Public to allay financial suffering, or legislation is promoted to stimulate the economy, all that spending spells I N F L A T I O N.
When you add money into the system, you diminish its value — and that is the definition of inflation. That process is like inflating a balloon. (If you overdo it, the balloon will burst!). It’s like the human body. Our bodies are a systemic whole no matter what the disease is. You can treat a diseased part of the body, but don’t forget the whole. Our money system does not take grievance gladly either. Quick fixes don’t address the whole. A leveling must result from a bad stimulus-money diet, i. e., inflation must run its course — if it does. Inflation = increase in the money supply, or debt/interest, at the cost of inflation.
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Despite all my pronouncements above, I suspect that by April or so of next year, our economy will be booming right along: prosperity is coming to Main Street. I say that because . . . I’m relying on an abstract, or anecdotal, indicator. Vernon Mahabal may the world’s best palm reader. He combines astrology in the hand with East/West palmistry. He says in all the palms he looks that, prosperity is coming by next Spring, April.
Why? How? Despite our having the worst COVID-19 numbers in the world, our economy will be bouncing back and our factories coming back, partly because of how much the war in Ukraine has cost Europe in energy costs and morale. They’re right in the middle of the latest European conflict. The sanctions didn’t work for anybody, but it particularly backfired on the sanctioners. The European Union is a bureaucratic albatross, imposing all kinds of regulations, rigidity, limits, and disincentives on production, not to mention political, financial, and territorial agendas. No wonder the U.K. got out via BREXIT (British exit).
Russia is floundering, having used up some 50% (?) of all of its conventional armament with no end in sight. It will probably either look for a way out or, next, use tactical nukes or cause a nuclear accident in Ukraine, all of which ups the ante, all this with Western Europe looking on in dismay: echoes of W. W. II! Europe’s banking solutions are also in freefall, a 0% interest rate for instance. Money pumped into a financial system is like replacing blood with sandpaper abrasives that cause more disease than cure.
In short, the good ol’ USA is in the catbird seat for at least the foreseeable year or two. Our geographic placement well away from Europe helps. So would bringing in millions of LEGAL immigrants (apply at the American embassy in their country) to bring inflation down and taxes up. Hopefully, solutions are in the offing, not just bloody bandages on hemorrhages.
If you are suffering from inflation, now is the time to take a second job, or cut expenses and vacations until things settle down. But do also put on your rose-colored glasses. Prosperity is just around the next corner.
Love (prosperity is all in the mind, and sometimes in the wallet),
Gene W. Edwards.
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