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The US Economic and Financial Situation

By April 9, 2022Commentary

For whatever reason, I feel like pontificating on a variety of topics the last couple of days, so readers will have to bear with me.  The world is pretty f***d-up right now, I think we can all agree, and the US is a mess.  I don’t know how anyone could not say we have a completely incompetent, if not senile, President and a deranged federal administration, which is intent on furthering division in the country and pursuing policies which are destructive to a rising standard of living and a peaceful, rational society.   Unfortunately I am not sure we can reverse much of the damage.

The foundation of any society is a strong economy and a solid financial status.  Successive administrations have done their best to undermine that and it is a testament to the resilience of a semi-free market economy that we haven’t fallen into permanent low or no growth mode, although Obama tried his best to get us there.  But we have piled on incredible amounts of debt, and continue to run astounding deficits every year which add to that debt.  Interest on the debt had been low, but is now rising rapidly, and as it is refinanced, the total annual cost to service the debt will similarly increase quickly.  We are reaching a point where we will be making very tough spending choices.

Last year about this time, I pointed out that inflation was unlikely to be temporary when so much money was being pumped into the economy and that interest inevitably had to rise.  No matter what nonsense is spouted by progressives, money supply growth, coupled with velocity, is the key factor in inflation.   I thought we would see 2% on the ten year by last year, but the Federal Reserve kept buying the debt, artificially restraining increases.  The Fed, with all its super-smart economists, whiffed on inflation projections and is now in panic mode.  The game of unlimited quantitative easing is done now, and the Fed has committed to substantial rate increases.  So now we see the ten year recently spike over 2.5%, and it almost certainly is headed higher.  So we are clearly in for a prolonged spell of both high inflation and high interest rates, never a recipe for strong growth.

At the same time, a variety of factors are contributing to even more reductions in economic growth.  Inflation itself leads to uncertainty about potential returns on investment, so businesses become more cautious.  Higher inflation means more spending, but not necessarily more production or more jobs.  The crux of economic growth is investment and especially investment in productivity.  If the same amount of money can produce more goods and services, then the total cost to consumers can be lower and they eventually benefit by buying more goods and services for the same amount of money, raising living standards.  Without productivity gains, consumers are trapped in a cycle of higher wages, but also higher prices, leaving them at best running in place.

Government has placed a number of headwinds on businesses that lead to less investment and lower productivity.  One is regulation, particularly environmental regulation.  It is almost impossible to do certain kinds of large projects due to environmental costs and delays.  China has phenomenal infrastructure in part because it doesn’t tie itself in knots appeasing whacko environmentalists.  And an emerging detriment to productivity is the extreme woke DEI movement, which causes diversion of resources, division among employees, suspicion and a huge amount of wasted time.  It also will lead to hiring, retention and promotion of less qualified staff and poorer quality products and services.  Our focus on social justice in education, and not on math, science, economics and other disciplines that actually improve lives, is killing our talent development.

While there is a lot of energy and entrepreneurial dynamism in our economy; government regulation and woke giant corporations do their best to stomp that out.  Rising interest rates don’t help.  So, voila, we will have stagflation.  High inflation coupled with low or now growth.  Old people like me lived through several years of this once before.  It was miserable, but at least we weren’t saddled with the level of debt and the kind of regulatory strangulation we have now.  We are well and truly f***ed, without major changes that I don’t foresee occurring.

The formula to re-strengthen our economy is actually simple; mustering the political will to do it is difficult, especially with everyone feeding at the government trough in one way or another.  We have to stop running deficits, period.  We should begin to pay down the debt and force ourselves to reduce it in some defined amount every year.  Where would the money come from?  We do in fact let a lot of rich people use all kinds of mechanisms to avoid taxation.  Closing them would make a huge difference, without raising rates.  Tax all forms of income the same, while lowering the rates.  Eliminate deductions except possibly for a child credit.  Make the whole system far simpler while taking away the ability to play games and avoid taxes.

There is an enormous amount of waste in government spending.  We could literally eliminate one-third to half of all government employees without it making a bit of difference, starting with everyone who has any job description relating to DEI.  Force government retirement benefits to be no better than private sector ones.  Actually try to prevent fraud in government social programs.  It isn’t hard to find a lot of money that doesn’t need to be spent.

And encourage growth by limiting the ability of government to hinder private business projects–combine and streamline permitting and put a deadline on dates to make decisions.  No more stalling by environmental groups for years on end.  Do a real review of regulations and repeal all except those that are absolutely necessary.  And on and on.  It really isn’t hard to identify the solution.  Just hard to get people to implement it.  So as I noted at the start, I don’t expect change, and I expect an acceleration in the decline of the American economy and standard of living.

Join the discussion 9 Comments

  • JT says:

    There’s no reason why interest rates are not tied to M2. If you want to print more $$, the interest rates automatically increase to control its affect on the system. Central banks should not have the luxury of separating these two choices.

    Taxes are behavioral modification tools. The entire system is based on incentivizing choices that minimize the taxation of the outcomes. It’s layer with decades of special interest accommodations that are completely out of control and out of touch with the reality of our situation. There are more pigs feeding from the bureaucratic IRS trough than any other sector of the bloated government, apparently with more on the way. In business speak, the country is ‘top heavy’. Things that are top heavy fall over. The question is really about where to be metaphorically ‘standing’ when this happens. The windward side is the sensible option, but that means bucking the prevailing winds !

  • JT says:

    Lew Rockwell has lots of Gloom & Doom click-bate to choose from, but Stockman is a sensible fellow with experience to draw from. There are certainly other perspectives out there, but as per this blog post, the numbers just don’t add up and something has to give. Considering that this installed administration’s goal is the collapse of America, you can bet they will be cheering it on.

  • Bob Harper says:

    What you observe about our current situation is correct. The remedies you propose are sensible. The chances of their being implemented are essentially nil. Therefore, your conclusion is lamentably, almost certainly correct as well. It was a good run, but……

  • Richard Allison says:

    While I tend to be a pessimist along the lines of your blog post, a few things give me hope. In no particular order:

    Cryptocurrency-real stores of wealth that the Fed cant print more of and unlike gold are freely traded within a free market and even in controlled economies.

    Gov. Ron DeSantis leading a very popular return to traditional American values. While I like Trump,the 20 or so million voters who voted for Trump still hate Trump so I don’t think he’s viable.

    Parents still love their children and will rise to the occasion protecting their children from the grade school groomers. Witness votes in Virginia proving that crazy takes on sexuality, CRT, etc are deal killers for progressives. Even blue democrats crossed party lines and they almost won New Jersey. Also the terrible pain caused by left wing teachers unions to their children will not be forgotten.

    Huge percentage of Americans of all political stripes are afraid of serious inflation after seeing it first hand and recent polls show they blame Biden, free money and democrats.

    More and more people are past Covid and are gradually understanding federal and blue state politicians lied to them.

    There’s more but when you ad all this stuff up I think your average voting American has seen the light.

    Ok, my two cents for the day.

    • Kevin Roche says:

      I hope you are right, and it seems voters are heading in the right direction, but I am not sure the will is there to take the steps we have to take in regard to our financial situation. And I don’t know how we fix the mess in our universities which spread the poison to every person the “educate”, which means all our teachers, journalists, doctors, economists, lawyers, business people, etc.

  • JT says:

    If you want a ‘Great Reset’, it should come in the form of an educational boycott at the public school and collegiate levels. Taking a year off from the ‘Liberal Grooming System’ will have no negative affect on you, or your future. If the system is properly reset, you’ll have a better education in far less time and be well ahead on the curve you are now on.

    Voters should demand the dissolving of the NEA and the Teacher’s Unions. Many states have ‘Home Rule’ charters and responsibility for the curriculum is legally defined at the school board levels where parents have direct voting capabilities.

    Let’s find out how many tenured ‘Professors’ are good FedEx drivers, Walmart greeters and Home Depot services people !

  • JT says:

    RA .. very curious about why you think that Crypto is a store of wealth? Ask yourself how much money you would have without electricity … The BRICS countries are heading to gold for a ‘real’ reason.

  • JT says:

    A little deep, but very good explanations of the Fed’s process, options, consequences. For the last couple decades, instead of fiscal restraint and proper management, the Fed has just thrown money at every problem it faced. Now all of a sudden throwing money at the inflation ‘problem’ can’t be a solution. Due to the tremendous debt, they can’t raise rates too much, or it’s game over due to the servicing costs. These morons couldn’t run a Little League !!

    The only thing left to get the all of the fait currency out of circulation is to tax it back. Hold on to your checkbooks kids, it’s coming. This bunch of fiscal clowns is also eyeballing our retirement accounts as a source of funds. It’s a very ugly situation … If CD’s get to 3% the stock market will empty out faster than you can say “Let’s Go Brandon”!

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