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“Our Economic Plan is Working” - Really? (Vol. 86)

Updated: Feb 7, 2023

analyticsbox | Jan 12, 2023


Economy Flow

According to President Biden, all is well

This is PBS (political bull sh-t) at its finest. The jobs report was good in many respects. New jobs created were 223,000, but declined from prior periods. The percentage of the labor force working is slightly higher, but well below historical averages, so there is a tight labor market and an unemployment rate near a half-century low. Wage growth slowed a bit, but is still well below the inflation rate, meaning negative ‘real’ earnings growth. Inflation declined in November a bit, but is still around 7%. Industrial production is slowing, with this week’s ISM Manufacturing data contracting for a second consecutive month. Interest rates have risen rapidly – short-term borrowing rates have soared from almost 0% a year ago to almost 4.5% currently, and are likely to rise further. A recession is on the horizon, in all likelihood induced by rising interest rates to intentionally slow the economy. All of this comes as an inevitable reaction to the massive government overspending and huge Federal deficits incurred to stimulate the economy after it had already substantially recovered from the COVID debacle, and a ballooning of the money supply as the Federal Reserve printed money to finance the deficits. So if the plan was to set inflation on fire, requiring the Federal Reserve to push interest rates higher to cause a recession, then the plan is working just fine. When the jobs report came out, the stock market reacted positively. Why? Because bad news from slowing wage growth is good news as the market anticipates the future. The sooner we slow down the economy, enter a recession and tame inflation, the sooner the Federal Reserve will be able to reverse course and lower interest rates. It seems contrary, but that is the way it works.


BOTTOM LINE

Here is a novel idea. Let’s insist that our government control spending, balance the budget and get on a sustainable growth path, and avoid having to rely on the unelected Federal Reserve to clean up the fiscal mess the politicians continue to make. Our politicians as a group just can’t seem to do that, even if some intellectually get it.

As Thomas Sowell, a great American economist said:

"The first rule of economics is scarcity, there is never enough of anything to satisfy everyone’s wants. The first rule of politics is to ignore the first rule of economics."

Sad but true.

LEARN ECONOMICS, THEN VOTE SMART

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