McCord: Don't be fooled by the spin. Economy is in bad shape now and going to get worse

Last summer, President Biden and top members of his Administration took to the podium to advise us not to worry about growing inflation, that they expected it to be “transitory”. Whether that assessment came from his political or economic advisors may never be known, but we know the truth now. Fast forward to the present, and fears of a recession are growing, but our President and his top Administration officials are again taking to the airwaves to soothe us, saying a recession is “not what we’re seeing now.”  Despite having had two consecutive quarters of negative GDP growth  —which is the recognized standard definition of recession — the White House is publicly denying it. Meanwhile, inflation continues to ramp up, with the latest number in excess of 9% annually, and increases in critical food and energy areas much higher. Housing rental rates are also running up sharply. Some of us can manage that. Many, however, cannot.

But no worries because now the Democrats have rolled out what they call The Inflation Reduction Act of 2022.  It calls for approximately $430 billion in new spending over ten years, much of which is focused on their climate related agenda (including extending tax credits for high priced electric vehicle purchases for people scraping by on up to $300,000 per year). Last time Congress dumped money into the economy, we got inflation. I wonder if the people naming this bill are the same ones who called that inflation “transitory.” At the very least this is disingenuous to the extreme: identify the most acute political problem they face and claim a totally unrelated large spending bill as a cure. They have published a financial statement showing a revenue component to this bill. But with a large part of the tax increase falling on corporations, they ignore the fact that businesses just pass increased costs on to consumers, including tax increases, so we will all pay. They claim significant added revenue from improved IRS enforcement, begging the question, if all that money is out there where has the IRS been all this time? 

In fact, if there are any revenue increases, we may count on this Administration to spend all of it and more. Not to mention that we have yet to hear the Congressional Budget Office’s assessment of the overall impact of the bill. Deficit and debt reduction will remain pipe dreams.

Just this week, the head of the Minneapolis Federal Reserve said that inflation is “spreading out more broadly across the economy.” More specifically he said “it’s very concerning. We keep getting inflation readings, new data that comes in as recently as this past week, and we keep getting surprised. It’s higher than we expect.” Other senior Fed officials, including Chairman Jerome Powell have said the Federal Reserve is “acutely focused” on inflation and will do whatever it takes to reduce it to a 2% annual rate. That’s a huge drop, especially considering the rate has been ramping up. Translation: interest rates are likely to go a lot higher. Higher rates limit investment and spending, curtail mortgage lending and home building and act as a brake on economic activity. When economic activity declines, that is recession. Inflation hand in hand with recession will be a disaster for many people. First you can’t afford to pay your bills, then you may face losing your job.

While the White House combs the dictionary for obfuscations and euphemisms, economists are speaking plainly. Consider what Harvard economist Kenneth Rogoff said in a May interview: once inflation “gets out of hand,” it won’t be easy to “bring it back under control.” Furthermore, he said “If [the Fed] have to raise interest rates that much, it will cause a recession, no doubt.” And just this week, former Democrat Treasury Secretary and Harvard University president Lawrence Summers, in a statement co authored with two esteemed colleagues, expressed the thought that a “major increase in unemployment” may be required to straighten out this economy.

OK, let’s put this end to end. The Federal Reserve sees inflation continuing to ramp up and they are “acutely focused” on bringing it down. The only tool they have is control of interest rates, which they are in the process of dramatically increasing, with more increases to come. And we are being warned that an economic contraction, potentially severe, is in the cards if rates get too high.

So who has more credibility in these inconsistent versions of reality? The clear eyed economists and policy makers in the Federal Reserve? Or the shameless deniers and spin-meisters in the Democrat Party who continue to insist that if we just trust them and keep spending more money on their favorite ideas everything will be just fine?

If any of you have any money left after paying your bills I suggest you place your bets on the Fed.

Ken McCord of New Castle is a retired small business owner with a keen interest in contemporary affairs.

Leave a Reply

Your email address will not be published. Required fields are marked *