Big Picture Week Ahead
Even though we are in the middle of earnings season and it is shaping up to be another pretty good one, there are more important events this week. The Fed is meeting Tuesday and Wednesday to discuss short term and long term agendas.
In the short term, I really don’t expect the Fed to say anything groundbreaking. They still believe that inflation is “Transitory”, wrong. They still believe that the slow movement of the labor market is temporary, maybe. And, they still think that the economic policies of the Fed are separate from the policies of the White House, very wrong.
Argue if you must, but let’s be realistic, inflation is here, it is not transitory and it is a lot worse than the Fed admits to. Those are simple facts and you can write me and explain why you feel I am wrong and I will read every email and answer every one with the same reply. You are wrong. This inflation does not feel like the inflation of the ‘70’s when we needed price controls but it is not much better. I have gone over this a dozen times and I still firmly believe that once people start looking at the end of month bills for food and energy they will spend less elsewhere and that will slow this economic recovery down significantly. This is not something that happens overnight and you will see some areas where growth isn’t happening and that will slowly spread.
The next component of the Fed’s misunderstanding is the labor market. The complaints came from the right that the generous unemployment packages a lot of states offered where keeping people at home and companies could not fill thousands of open positions. The complaints from the left were that the supply chain issues caused by the pandemic were preventing companies from ramping back up, leaving factories idled or running at less than full capacity. They also insisted that hundreds of thousands of people were rethinking their careers and where they wanted to work, thus stunting a recovery as well.
I do think the employment picture is more complex than all of that but at the end of the day I still think it boils down to money.
Remember when there were shortages of this and shortages of that? What changed the scenario? Price rises. Toilet paper costs $1.65 a roll on average and you couldn’t find a single roll. Yet, amazingly at $1.95 to $2.25 a roll, you can buy them by the crateful. You have job openings at $17 an hour for starter position at a retail outlet, no one shows up. Pay them $24 an hour and you have PHD’s coming out of the woodwork. You get my point. The price points for success have dramatically increased and that is something that will not go away for a while. Magically, you charge more, things are in abundance. Magically, you pay more and there is no shortage of viable candidates.
Then you have bills floating around in Congress that are monumental in size and scope and if you think the Feds repurchasing programs have flooded the system with cash, wait till any or all of these bills pass. Forget about the inflationary aspects, just think of the societal impacts. An infrastructure bill is one thing. Probably half of that money will be money well spent under any circumstances but the other half? Maybe the impact will be positive but the costs just seem too high and thats the bill that should be passed. The other bill(s) are the ones that will end up completely changing the course of this country’s future. Not for the better either. We are already massively in debt and adding 1.7 trillion dollars to that debt burden (in addition to the trillion or so the infrastructure bill adds) is just not workable in my mind. Increasing taxes on millionaires and billionaires, within reason, won’t mitigate the costs of these packages.No matter what form of accounting the White house and Congress uses to pay for these packages, they will never be able to reach their stated goal of not putting this burden on the middle class. The bottomline is this. We have a Congress that is fighting for it’s life and the only known remedy is to spend and spend and spend. Voters love full employment. Voters love free programs. Voters rarely look down the road to see the damage that a free spending government can create.
There is an expression that has been around for decades and it perfectly describe the position we are in. “They can kick the can down the road only until the road ends”. We may be closer to the end of the road than you think.