Terry H. Schwadron
Sept. 30, 2022
Just to review, inflation is the biggest enemy we face, whether poor, rich, or just trying to get ahead.
That’s the message we are hearing over and over, and it’s why on-the-street interviews with politicians and voters agree. When gas and supermarket prices rise, we need to vote the current bums out — even if the other bums don’t have a hint of a different plan that would produce a different immediate result.
But now, just as expected and advertised, the cure is suddenly being seen as worse than the bite.
The Fed raised basic borrowing rates for the third time last week, just as they said they probably would, and vows to do so more. Our corporations and financial markets are revolting that borrowed money will cost more, and the talk of economics is once again the runaway, renegade effects of the cure rather than the original disease.
The possibilities of declaring a formal “recession,” classically defined as two consecutive quarters of negative national economic growth, apparently even trumps inflation as an evil. Or at least something that might block more corporate profit.
The Fed’s thinking: If we depress available cash for big purchases from cars to appliances to houses, we ease upward pressure on prices. Of course, that formula doesn’t account for global fuel price manipulation, war prospects, still-knotted up supply lines from stubborn covid off-shoots or the market effects of a growing number of floods, droughts, fires and other disasters, likely being worsened by climate change. The hurricane in Florida is sure to hit at orange juice prices, for example, just as surely as presenting an infrastructure damage bill in the many billions of dollars.
What We Don’t Know
It also doesn’t account for either greed or the growing appreciation that we just might not know exactly how to control prices in global pushes and pulls.
Just listen to the words this week from Federal Reserve Chair Jerome H. Powell, who acknowledged he doesn’t really know the direction for the U.S. economy. From his own words to a group of reporters, “He doesn’t know if it is doomed to fall into recession. He doesn’t know how long high inflation will persist. And he doesn’t know if healthier supply chains will be much help,” reported The Washington Post.
“It’s very hard to say with precise certainty the way this is going to unfold,” Powell said. “No one knows whether this process will lead to a recession or, if so, how significant that recession would be.”
As The Post noted, “public confessions of doubt are rare in official Washington,” and particularly for leaders of the Fed in directing the economy.
It makes you wonder what all the politicking is about. On what basis other than anger venting to the sky are we hearing that people want to change Congress majorities over too high prices.
Over and over, we learn that it is not Joe Biden or Senate Republicans who are controlling prices, it is the Fed’s governing board. And now, we’re hearing that they don’t know either. Nevertheless, the desire to label it all for partisan voting purposes seems irresistible.
And, whether the situation is labeled “recession” as a technical term is irrelevant if you have trouble making your household ends meet.
Ask a financial adviser and you’ll likely get the response to invest for the long term if you have disposable money for investments, don’t react to the market’s minute-by-minute gyrations.
Listen to the Fed, and you’ll hear similar advice on a macro scale. Changing U.S. economics takes time, and they are asking financial institutions as well as investors to have more patience that anyone finds reasonable.
Both the Fed and the Biden administration stress the stable parts of the economy, the steady rise of hiring and jobs, the strength of the U.S. dollar, the continuing, if mystifying low growth percentages. Those are the exact same things that Republican political opponents reject — insisting instead thqt everything would be fine if only we drill for more oil this afternoon,
House Minority Leader Kevin McCarthy (R-Calif.) rolled out a Republican Commitment to America agenda that attacks high prices but lists no response to inflation. Instead, it suggests that cutting Obamacare, Social Security and Medicare as entitlement programs and revoking legislation that sends Medicare to negotiate prescription drug prices will fix prices, along with drilling.
Meanwhile the financial markets, which move on computerized notification of the slightest movement in key stocks and bonds with lightning speed to recoup money from corporations that project that next quarter might show increased costs or somewhat lower sales. It’s a system built around gaming for pennies, dependent solely on temporary changes in corporate profit, and scaled to enormous proportion.
Is that financial markets economy the one that we need to address, or is it the supermarket economy, because they are very different.
Outside of fuel, the biggest driver for the last months has been the cost of rent. There is absolutely no reason to believe that Biden’s spending bills have an immediate effect on rent, there is no reason to believe that the need to invest in corporate pharmaceutical research as an example has an effect on rent prices, there is no reason why supply chains have an effect on rent. There is every reason to believe that landlords think they can safely raise the rent along with other prices just for greed.
And the Fed, Biden or Republicans can’t fix that.