The October inflation numbers are in and it doesn't look good for our Caesar Disgustus. The Consumer Price Index has inflation at 3.7 per cent higher than a year before with most of it concentrated in the energy and food sectors of the economy. Worse still, is the P.P.I index which charts wholesale prices showing an increase of 6.3 per cent year-over-year increase. This means that inflation isn't coming down any time soon. Disgustus, as always, has made a pig's breakfast of things.
It is rumored that the Federal Reserve is, once again, contemplating increasing the prime interest rate charged banks when they borrow money from the fed. What else can the bastards do?
The Fed, as the Federal Reserve is known, has few tools in its tool kit. In fact, only two. One is the money set aside to bail out the banks in time of crisis, as in 2008-9. The second is the fiddling with the prime interest rate in order to regulate consumer demand and, by extension, the rate of inflation. Both are crude instruments at best, and both are worthless in the current context.
You see, we are back in the '70s, facing the same 'stagflation' for the same reason. To wit: interruptions in the supply chain, again oil and gas, causing a spike in prices as demand outstrips supply. In the 70s it was due to Nixon's support of Israel during and in the wake of the Yom Kippur War; today it is the result of tRUMP's support of Israel in this mindless conflict with Iran. In the 70's we got the Arab Oil Boycott, today we have the closing of the straight of Hormuz and the consequent devastation of refineries, oil pipelines, and freighters to transport oil and gas to the world's markets. These disruptions of a primary resource to modern economies creates both an economic slowdown, due to higher prices on production and consequent shrinking of capital, higher unemployment and, curiously higher inflation because of the ripple effect of spiking energy prices. This creates what had hitherto not been seen: increased unemployment and increased prices at the same time. Stagflation, as it came, in the 1970's, to be known. Only Nixon, it was held, would be capable of pulling this one off.
Not so, it now appears.
It's not supposed to happen this way. According to classic textbook economics there is an inverse relation between inflation and unemployment. Higher unemployment is supposed to curb inflation through the expedient of reducing demand, “cooling” the economy by reducing the number of dollars in pursuit of now fewer goods as the economy contracts. Therefore, if the Fed raises interest rates, money becoming more expensive means fewer consumer loans, the purchase of fewer goods resulting in more unemployment leading to reductions in the money supply circulating through the economy, hence, it is held, less inflation. The value of money is therefore secured. This is how the Capitalist ensures the value of his investments, since all value is measured in dollars. This is also why the working stiff is never invited to share in the bounty he or she produces.
But, I digress.
The problem, at least since Nixon and not seen since, is that both Nixon and tRUMP have revealed an entirely new economic phenomenon wherein serious disruptions of the supply chain breaks all the dictum's of classic economics. That is, the relationship between employment and inflation is not an inverse relationship but a reciprocal one in which one reinforces and adds to the other. Inflation causes more unemployment, because of the constriction in purchasing power and unemployment causes more inflation because of, among other things, the ever rising cost of money. The Fed raising the prime rate to nearly 20 per cent in 1980 is a clear case in point. And, as these columns have pointed out, the ministrations of Messrs. Volker and Greenspan served to only exasperate the crisis by increasing the cost of doing business by jacking up the prime interest rates. Indeed, one could make the case that by the late 80s the single factor in the inflation index was the cost of money itself.
Inflation here is not due to an 'overheated' economy. It is due to disruptions in the supply of goods and services. Biden's inflation was not due to federal spending it was due to forced unemployment caused by the pandemic, the closing of factories, the shutting down of human interaction meaning services to those absolutely necessary in order to provide minimal functioning as the nation, indeed the world, struggled with this global crisis. This is understood by neither classical economists nor ReSCUMlickan Stink Tanks, like the Heritage Foundation. Nor is it understood by The Wall Street Journal, Faux News, Newsmax or any of the simpletons holding court on hate radio.
My point is that the Fed simply doesn't have the tools in its toolbox to deal with this, not in anything like a timely and effective manner. Raising rates only adds to inflation. Strangely, tRUMP is right about this, but for the wrong reasons. He rails against the fed because he wrongly holds them responsible for preventing the dawn of his delusional golden age. The problem is, as always, that like Nixon he is the author of his own demise.
It is tRUMP's tariffs, and his ill-advised and ill-conceived war with Iran, that has caused these disruptions. Again, as has been pointed out in these columns, unless one can meet demand through domestic production, any increase in tariffs will result in increased prices precisely because the American consumer will be forced to pay the additional tax, there being no other alternative. Now ask yourself, how many goods on the shelves of Walmart or your big box store do you see that are made in this country? How many on Amazon? I rest my case.
It took 20 years to wring the inflation and restore the 'balance' in the wake of Nixon and Kissassinger's Middle Eastern adventures. It took a lot less than that to right the ship in the wake of the Second World War. That's because Harry Truman used wage and price controls. Nixon, through inspired incompetence, put Donald Rumsfeld in charge of that and made a pig's breakfast of things destroying, perhaps for all time, that simple remedy. ReSCUMlickans, for all their presumed 'business acumen', simply do not understand economics.
So Disgustus, promising to end inflation “on day one”, now finds himself totally enmeshed with the tar Baby. Like Nixon, he just couldn't say no to Israel and keep his hands off the Middle East. As he 'leads' his party into the mid-term elections, Disgustus now finds a mere 9 per cent of the nation 'strongly' supporting him, a clear majority now 'strongly' oppose him, with at least 2/3 of the nation disapproving of his job performance, depending upon the issue in question. A hiding now awaits him in the political woodshed.
It has been too long in coming.
An' Bre'er Putin, he jus' laugh and laugh
Impeach. Convict. Imprison
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