Now What?
Looking back at the data from the past two weeks, you have to wonder, How can it get any better?
Inflation, while stubborn, is receding. People are working and getting paid more for it. Interest rates will start to come down later this year. The housing market is still doing pretty damn well.
GDP numbers were great! The economy is humming and most importantly, people are spending.
Buy, Buy, Buy Mortimer!!
Eh, oops. Anyway, you get my point.
We are a consumer economy. No matter what the Biden administration( or even a potential Trump administration) wants. We are consumers. We don’t create a lot. We don’t manufacture a lot. We just buy a lot.
This is what happens to an Apex Economy. They buy. They have others manufacture. They have others service. They sit on their collective butts and do little.
This happened in Rome. This happened in England. This happens when great societies reach their end. They lose sight of what made them powerful and important.
The Greeks, The Romans, The Ottoman empire. They all created. They all advanced society. They got fat and lazy and someone came and took their place.
Obviously I am no historian but I think the parallels in history are important and just because a certain sector of US society wants to change what is taught in schools, it doesn’t change what history can tell us.
Do I think we are close enough to that point where the United States’ importance in World affairs is waning? No, not yet but I think if we forget the paths of great nation states before us we are doomed to repeat those paths.
Hard to look at the economy now and seem doom and destruction but as you know, I like to look at things differently and because I approach things with a critical eye, I don’t think I get fooled often by rhetoric from politicians or business leaders very often.
I will admit, it is very hard to throw a wet blanket on our economy right now and I will also admit that I thought we were in for a mild recession in the first half of this year. Engines always need time to rest and my thinking was that the economy was blazing ahead at almost full speed, it will need a while to catch it’s collective breath.
Judging from the data so far, that isn’t happening.
The Fed was hoping for a soft landing but apparently we have too much lift and thrust and not enough weight and drag to land this plane, softly or otherwise.
I often wonder what the talking heads even mean by using the term soft landing. Is it in relation to inflation? Is it related to a robust growing economy? What is it exactly? Why do we even need a term for a return to normalcy? And what is normalcy? You see, I think that we have a whole catalog of terms that we just plug in because we really can’t explain where we are in any single economic cycle.
I feel like that five year old kid in the car seat asking “Why?” All these questions, no definitive answers.
I digress…again.
What we do have is a moderately strong economy where things are rebalancing to some sort of normalcy (there is that term again). Inflation will finally be the 10th item on the NBC Nightly News with Lester Holt and then it will be another note in the history books.
I have said multiple times over the years that I believe the 2-2 1/2% target for inflation is too low. What happens with an inflation at that level, growth is slowed as well. You look at the correlation between GDP growth and inflation and there are some eerie similarities. I think if you want a prosperous, healthy economy, we can live with inflation around the 3% level. Real inflation, not the BS Biden inflation numbers that exclude food and energy. You live with that, you will also live with roughly 3-3.25 GDP growth. Which like it not shows vibrancy and prosperity.
It goes without saying that I am no genius but I think you don’t need to be any sort of intellectual to understand the economics of this country. People work, people spend. If people feel comfortable in their economic situation, people may save to buy a new home. People will then spend more. The service sector will thrive. All boats get lifted when people have jobs. Right now, we have prosperity and growth. Will it continue? I would like to think it will but that has never been up to the people who work. Economic policies succeed and fail all the time and that is the wild card.
Maybe it’s not that much of a wild card since the economic policies that will impact Americans most are pretty much out there.
Historically, Inflation starts with some sort of monetary policy gone wrong. Look at all of the inflationary cycles we have been through. The Fed or the US Government messed something up. This cycle was no different. No matter what the Biden Administration says, they were the main reason we had spiraling inflation. Supply side issues, maybe. Coming out of the Pandemic, yeah, that had some limited impact. However, the Biden Administrations debt defying pumping of trillions of dollars of cash into an already vulnerable system was the root cause and no matter how they try to say they fought inflation and won, they started it.
The economy after two years has finally wrung those trillions out and we are back in the same place that we were after three years of the Trump administration, except back then we didn’t have an insurmountable debt situation like we do now. 33 trillion and climbing. Thanks Joe