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Our Current Financial State

By February 13, 2022Commentary

I am going to do something really stupid this morning and indulge myself in a couple of non-health care, non-epidemic commentaries.  You may recall that last spring, as the Biden administration began rolling out its truly crazy spending, that I said interest rates and inflation were headed far higher, while growth would slow.  It is always dangerous to try to predict even the short-term future and I was a little early on the interest rate rise.  More than I thought it would, the Federal Reserve stupidly facilitated the massive growth in the money supply and forced interest rates to remain lower than the market would set them at.  But once it became apparent that inflation was not temporary, other than on time scales appropriate to the lifespan of a bristlecone pine, even the Fed had to pause and think.  So now the ten-year is over 2%, inflation is anything but temporary, and we have a national debt of over $30 trillion dollars, while we increased the money supply by over 40%.

We have a school of whacko economists who believe that we can print as much money as we want with no consequences.  The consequences are about to hit us with a sledgehammer.  More money means more dollars chasing a supply of goods and services that can’t keep up.  The extra dollars aren’t going to producing more, they are going to paying more for the same or a much more slowly growing supply of goods and services.  More debt means more of government spending goes just to servicing that debt, which so far has occurred at low interest rates.  We are in a trap that there really is no escape from without really taking severe punishment.  And the sooner we take it and get it over with, the less painful it will be in the long run.

We have to immediately end the deficits and begin reducing the debt load.  That will mean a real effort to eliminate unnecessary and wasted spending, and there is a lot of that.  We have to stop the nonsense about renewable energy, which is both unreliable and far more expensive when all costs are included, and which is imposing a huge burden on consumers and manufacturers.  Want to see the future of green energy–look at Germany.  We have to be a lot more serious about creating an economy that raises people’s standards of living, not one that traps them in a spiral of higher wages that can’t keep up with higher inflation which creates more pressure for higher wages, and so on.  We can’t do anything significant in this country without 400 environmental studies, 300 DEI studies and so on.  The comparison to a country like China, which has more modern infrastructure and manufacturing capability than we do, couldn’t be starker.

For the rest of this year, I think we are unquestionably going to see continued very high inflation, huge pressure for more pay increases, and slowing growth.  The job numbers released last week were 100% due to once-in-a-decade seasonal adjustments and when the adjustments for all of 2021 were actually totalled up, not just the ones at the end of the year, the jobs added actually declined over prior estimates.  We have created a sick, addicted to free money economy and the withdrawal is going to be very painful and damaging.  Welcome to the progressive economy.

Join the discussion 7 Comments

  • Ann in L.A. says:

    All that while Social Security and Medicare are on their last legs. Both will hit the wall soon and not be able to pay out all the benefits they do now. The last Trustees’ report couldn’t really take covid into account yet, and pegged the day Social Security would have to begin automatic, across-the-board cuts as some time in 2034. Covid likely brought that date forward by years.

  • Kevin A Rademacher says:

    Spot on!

  • DJ says:

    “We have to immediately end the deficits and begin reducing the debt load. That will mean a real effort to eliminate unnecessary and wasted spending, and there is a lot of that. We have to stop the nonsense about renewable energy, which is both unreliable and far more expensive…”

    But, of course, we will do none of that. The government that has handled the Covid situation so well is also in charge of these issues.

    There is no way to stop this runaway train until it ultimately goes off the rails and crashes. It will be ugly.

  • Kevin Roche says:

    ironically, and not talked about much is the enormous benefit to social security and Medicare from the acceleration of the deaths of many beneficiaries, for a few years that will actually provide some relief.

  • Joe Zoborowski says:

    Your comment “We are in a trap that there really is no escape from without really taking severe punishment. And the sooner we take it and get it over with, the less painful it will be in the long run.” is true of course. The problem is ‘they’ have no intention of fixing anything. Their goal is to wreck it all. The more pain, chaos, and fear they create the more comprehensive their “Build Back Better” program can be. BBB is code for extreme government authoritarianism in our life, the likes of which we have never seen! That is why we must all support efforts like the freedom truckers. Only through massive demonstrations like these will we be able to slow this train wreck down.

    You may say what do protesting vaccine mandates or climate change have to do with our nation’s debt load? If the first two can be sufficiently blown out of proportion by a compliant MSM and Big Tech into ‘existential threats’, then the common man will readily concede his autonomy & freedom to the state so Big Government can ‘fix’ the problem and we can all get back to normal again! You know, just like they said two years ago “2 weeks to flatten the curve!” Trust me, Joe Biden’s got this – just like inflation, Afghanistan, and the southern border! In a few weeks we can add Ukraine to the list.

  • Rob says:

    I would add that pensions are really going to get hit hard. Pensions used to invest almost totally in government bonds with a smattering of private bonds. Now that they’ve mostly switched to equities, they are caught with investments that won’t grow at the coming interest rates. If they try to transition existing investments into bonds they‘ll cause a stagnant stock market. And real estate always goes in the opposite direction of interest rates.

    This is all a result of a public sector that has grown too large. But no Democrats understand this and neither do most republicans.

  • Joe Doakes says:

    Twenty years ago, Michelle Bachmann pointed out that just to get to a balanced budget (not pay down the debt at all), we’d have to slash federal government spending by around 40%. She was ridiculed by all bien pensants but had we bitten the bullet as she prescribed, we’d be far better off today.

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