After the recent COVID-19 lockdowns, many businesses in most states have reopened. The few remaining governors who are holdouts are loosening restrictions slowly.
Consumer prices continue to rise. Many goods and services cost more today than at any point in the last decade. Inflation has not been this high since the 2008 financial crisis and the aftermath of the “too big to fail” catastrophe.
Lower prices would increase spending. Instead, higher prices are stagnating the recovery and limiting spending. Homes received some repairs due to the relief checks, but that temporary boost was a one-time event. Appliances and furniture supply chains have all dried up due to significant blockages and backorders without maintaining inventories. It will hold prices at abnormally high levels.
Government spending, much of it necessary under Trump, has only accelerated under Biden. Structural inflation is the persistent and inescapable result of consistently depreciating the value of the US dollar. It is like Zimbabwe’s version of quantitative easing.
Biden wants $3.5 trillion for his current budget, which will likely get passed. He also wants at least $1.2 trillion for infrastructure, which may have the effect of creating stagflation like the 1970s.
Joe Biden is playing games. By blaming the Federal Reserve while claiming that the “central bank’s independence” is why prices are soaring, he hopes to avoid responsibility for his own fiscal and economic policies.
If the Fed raises interest rates, which it probably should do, then lending will face a logjam. Cash and equity-heavy large businesses can sustain themselves more easily than local businesses. Small businesses owners will suffer the most when capital is harder to get.
By digitally “printing” dollars, the Treasury will attempt to finance the deficits created by Democrat politicians. But if the Fed keeps rates low, inflation takes off.
Wages always lag inflation. Employers make more accessible money for years when there is an influx of trillions of dollars before they decide to invest in their employees.
Steven Moore, Economic author, and commentator co-founded the Club for Growth. He recently noted, “A lot of the spending is not tied to economic output. It doesn’t increase production. It just increases demand for services. If the spending continues, there are no doubt interest rates are going to rise.”
Recent guidance from The Fed indicates that Powell, the Chairman of the Federal Reserve Bank, wants to keep the benchmark short-term interest rate pegged near zero.
Powell’s plan is meant to increase employment to the nominal level, where most people who want jobs have them. When the government incentivizes unemployment, the percentage of actual workforce participation will drag productivity. Once this baseline is achieved with government spending digested by spreading funds around Democrat interests, annual inflation will rise.