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Revisiting Our Economic Situation

By June 9, 2022Commentary

My two cents on economic trends is worth about that.  When I started mentioning this about a year ago, inflation was going to be temporary and we were concerned because the ten-year treasury interest rate was approaching 2%.  Today it is over 3% and still rising.  And inflation doesn’t appear to be going down anytime soon.  The initial cause of the inflation was clear–too much money put into circulation in a very short period of time.  The government was literally just handing fistfuls of money out.  More money means more demand for goods and services, and that rapid jump in demand cannot be easily met.  Lower supply than demand means higher prices.  This was exacerbated by epidemic-related restrictions.  Now we have other factors affecting supply, including disruptions from the Ukraine war.

One clear example of the current incompetent administration’s self-inflicted inflation wound is energy.  These morons are doing everything in their power to limit the availability of fossil fuel energy, which is still the primary source of energy for the world.  The US has the capability to produce plenty of oil and gas for ourselves and Europe, but the Presidementia is cancelling leases and making it impossible to expand supply.  And federal regulations make it impossible to add refinery capacity. So we are headed to $5 gas everywhere.  This is beyond stupid, since higher gas prices affect almost everything–trucks run on gas or diesel last time I checked.  But God forbid we should tell the environmental whackos to take a back seat and shut up.

Now one thing that might relieve some inflation pressure is that demand is beginning to collapse, as large retailers like Target and Walmart have noted.  People are running up credit card debt and using savings to just keep up with the basics.  Economic growth is beginning to slow.  Soon we will be in the stagflation sweet spot–inflation still running over 5% annually and no economic growth.  How long we stay there will depend on how long we keep up the same dumb policies and how deep the recession is.  We need a major reset.  The Federal Reserve needs to stop screwing with interest rates and let the market set them, which would force more government fiscal discipline.  The administration needs to adopt energy policies that expand supply.  I don’t expect anything rational to happen, however, so I think we are in for a prolonged period of misery which will eventually include rising unemployment.

The stock market had a slight correction, and I say slight in comparision to the run since the depths of the epidemic low.  Stock prices are high by any valuation measure, and it will be hard for earnings to catch up with valuations.  As interest rates keep moving up, other investments become an attractive alternative.  So I expect we will see a more significant correction by mid to late summer.  More pain when people look at their 401(k) statements.  It isn’t pretty and both political parties deserve blame for getting us here, but the one currently in charge should and will get its butt kicked right out of office in November.  We will see if that actually results in more sensible policies that restore long-term growth potential.

Join the discussion 7 Comments

  • Joseph Lampe says:

    Your two cents on economic trends is actually worth much more than that.
    Inflation is an insidious phenomenon.
    For example, fuel cost inflation adds cost at each stage of the product lifecycle.

  • DuluthGuy says:

    The only way out of this is to let interest rates get as high as they were in the early 1980’s and greatly increase our upstream, midstream, and downstream production of oil. It’ll create a lot of pain in the short term, but that’s the only way out in the long term. And there’s no way oil production will increase by any meaningful amount until Biden is out of office. Even if there is a red wave this November, Biden will still be able to stop any new oil production.

  • dell says:

    What about the BIGGEST problem, U.S. overpopulation and population growth? It’s NOT oil, it’s population!

    In 1950: Today,
    Arizona: 750,000, 7.6 million.
    California: 10 million 39.7 million.
    Nevada: 158,000 3.2 million.

    3 states combined about 40 million more people since 1950.

    California expects to grow by 20 million people within 28 years, over 90 percent by immigration.

    By 2060, immigration will add 75 million people to the U.S. and many many more under Biden’s national suicide policies.

    DEEP in DENIAL: this in an area known for centuries of drought. Civilizations wiped out.

    But, they always say its a shortage of water. NO its the longage of people.

    Another 125 million, mostly from immigration, by 2050 is the projection.

    Think of the water and energy needs, pollution, biodiversity lost!

    Biden?
    🙁
    Top 3 worst presidents. More clueless figurehead.

    Oil?

    It is impossible to expand energy supplies.

    Stop the wishful shop talk. NO oil plant has been built because it requires a certain kind of oil to manufacture car gasoline and we don’t have it. Nor has any robust new fields been found. Ergo, any very expensive construction has a short life.

    The Ukraine has nothing to do with the world’s oil situation. The U.S. has weaponized practically everything they could. Don’t believe what they say.

    Wacko Environmentalist?

    Yep! The Sierra Cub, Izaak Walton League sold out. Sierra Club well over $100 million if they tossed out their U.S. population policies. The Ikes did the same but for less money. They are now advocates for unlimited growth and open borders.

    And their emphasis changed from habitat, critters, and the environment to doing everything they could to ruin economies. Ergo, hour description, “wackos”. They don’t always appear to tell the truth.

    Environment?
    “We kill off 100,000,000 sharks annually for shark fin soup.” “We’re now causing the extinction of 100 animals 24/7 across the globe.” “Unbelievably, more than 200,000 acres of rainforest are burned every day, and 78 million acres lost every year!”

    The 6th and Final Extinction is well underway because too many humans living too well.

    Which brings to mind, (1980s!!):

    “The worst thing that can happen during the 1980’s is not energy depletion, economic collapses, limited nuclear war, or conquest by a totalitarian government. As terrible as these catastrophes would be for us, they can be repaired within a few generations. The one process ongoing in the 1980’s that will take millions of years to correct is the loss of genetic and species diversity by the destruction of natural habitats. This is the folly that our descendants are least likely to forgive us for.”

    Edward O. Wilson
    “Resolutions for the 80s”, Harvard Magazine, January – February 1980, p22.

    Target?
    They became woke advocates. They increased employee pay for political not economic reasons. The media held them in high regard for the increases! Up went the stock! Smart money selling to dumb money. In order for them to do raise pay they had to raise process; they raised prices three times and eliminated some wares. Now economic reality has begun to set in and price decline to the market –as will employment.

    Inflation.

    Yes, in the past it was money caused. “Printing”.

    Today, its resource limitations, notably in energy. The U.S., Minnesota, and the world is massively overpopulated and there is not sufficient resources to provide for them.

    50 years ago, a zero U.S. legal and illegal immigration policy and a 1-child family objective was the ONLY policy to have provided the time and saved adequate resources to provide resources for those 1-child families. American families were almost at that point; then the borders were opened and environmental, economic, and social suicide became irreversible.

    THERE IS NOTHING THAT CAN BE DONE TO REVERSE ENERGY DECLINES.

    Leases?

    There are 9,000 leases available. They are not being used because it cost too much to produce. All the low-hanging fruit has been picked. And no super-giant or giant oil fields have been discovered in a long time. Get used to it, cheap oil is gone. There’s still oil but it will cost you.

    Likewise for coal. Still have lots, but its lower quality, falling btu energy (meaning more is needed) and not as clean.

    Keep in mind, some places are protected habitats for ecosystem sustainability, critters; places for other life and geographic forms. Some want to rape and pillage every inch of the earth if it suits humans. 🙁

    Interest rates?

    Market set rates? Yes. The economy will on the path to a balanced productive economy; as much as it can be.

    However the FED has used its powers to manipulate markets not balance the economy. They have roughly $10T in debt from purchases (“printing money). Keep in mind the FED is NOT the government. It is the collection of U.S. banks, Morgan, Citi, Wells Fargo, et al. Ergo, that $10T is the debt of our banks. Literally the U.S. bank system is bankrupt.

    The Govs have $42T in debt and little enthusiasm for paying it down -except as Lampe notes by weakening the dollar, inflation.

    Yields are rate of interest plus a nominal return. If inflation is today’s 8% and a return is 2% it implies today’s 30 year bond selling at $1,380 needs to drastically fall in price to reach 10%.

    As would all bonds. Mortgages, auto loans, construction financing rates skyrocket.

    The consequence of reversing interest policy is the exact opposite of reducing rates; rates down activity up; rates up activity down. In the $Ts it’s big time down!

    $42T and $10T of debt is economic activity taken from the near future. We’ve sacrificed those in the approaching years so that we can continue our current lifestyle. Party On has turned to the long hangover.

    Stock Markets?

    We are still near record highs.

    Markets (FED, Merril Lynch, …) continue to discount a growth economy. There is a nearly perfect correlation between economic growth and energy growth.

    However, industrial society as we know it is over; some day, soon, markets will discount a declining or negative growth economy.

    Because energy is in reverse, it is impossible for the economy to grow.

    Almost everyone has in their mind the stock market’s future will mirror its past. “It’s not guaranteed” but everyone believes it is over time. Unless you are very astute today, those 401ks are not gonna help you much, even if you are lucky enough to have job.

  • JT says:

    Not if He and is band of morons are all impeached !

  • dell says:

    What about the BIGGEST problem, U.S. overpopulation and population growth? It’s NOT oil, it’s population!

    In 1950: Today,
    Arizona: 750,000, 7.6 million.
    California: 10 million 39.7 million.
    Nevada: 158,000 3.2 million.

    3 states combined about 40 million more people since 1950.

    California expects to grow by 20 million people within 28 years, over 90 percent by immigration.

    By 2060, immigration will add 75 million people to the U.S. and many many more under Biden’s national suicide policies.

    DEEP in DENIAL: this in an area known for centuries of drought. Civilizations wiped out.

    But, they always say its a shortage of water. NO its the longage of people.

    Another 125 million, mostly from immigration, by 2050 is the projection.

    Think of the water and energy needs, pollution, biodiversity lost! Energy needs!

    Biden?
    🙁
    Top 3 worst presidents. More a clueless figurehead.

    Oil?

    It is impossible to expand energy supplies.

    Stop the wishful shop talk. NO u.S. oil plant has been built because it requires a certain kind of oil to manufacture car gasoline and we don’t have it. Nor has any large new fields been found. Ergo, any very expensive construction has a short life.

    The Ukraine has nothing to do with the world’s oil situation. The U.S. has weaponized practically everything they could. Dismiss what they say.

    Wacko Environmentalist?

    Yep! The Sierra Cub, Izaak Walton League sold out. Sierra Club for well over $100 million if they tossed out their U.S. population policies. The Ikes did the same but for less money. They are now advocates for unlimited growth and open borders.

    And their emphasis changed from habitat, critters, and the environment to doing everything they could to ruin economies. Ergo, hour description, “wackos”.

    Environment?

    “We kill off 100,000,000 sharks annually for shark fin soup.” “We’re now causing the extinction of 100 animals 24/7 across the globe.” “Unbelievably, more than 200,000 acres of rainforest are burned every day, and 78 million acres lost every year!”

    Please keep in mind, some places are protected habitats for ecosystem sustainability, critters; places for other life and geographic forms. Some want to rape and pillage every inch of the earth if it suits humans. 🙁

    The 6th and Final Extinction is well underway because too many humans living too well.

    Which brings to mind, (1980s!!):

    “The worst thing that can happen during the 1980’s is not energy depletion, economic collapses, limited nuclear war, or conquest by a totalitarian government. As terrible as these catastrophes would be for us, they can be repaired within a few generations. The one process ongoing in the 1980’s that will take millions of years to correct is the loss of genetic and species diversity by the destruction of natural habitats. This is the folly that our descendants are least likely to forgive us for.”

    Edward O. Wilson
    “Resolutions for the 80s”, Harvard Magazine, January – February 1980, p22.

    Target?

    They became woke advocates. They increased employee pay for political not economic reasons. The media held them in high regard for the increases! Up went the stock! Then smart money began selling to dumb money. In order for them to raise pay they had to raise process; they raised prices three times and eliminated some wares. Now economic reality has begun to set in and prices will decline to the market –as will employment.

    Inflation.

    Yes, in the past it was money caused. “Printing”.

    Today, its resource limitations, notably in energy. The U.S., Minnesota, and the world is massively overpopulated and there is not sufficient resources to provide for them.

    50 years ago, a zero U.S. legal and illegal immigration policy and a 1-child family objective was the ONLY policy to have provided the time and saved adequate resources to get past the botttleneck –to provide resources for those 1-child families. American families were almost at that point; then the borders were opened and environmental, economic, and social suicide became irreversible.

    THERE IS NOTHING THAT CAN BE DONE TO REVERSE ENERGY DECLINES.

    Leases?

    There are 9,000 leases available. They are not being used because it cost too much to produce. All the low-hanging fruit has been picked. And no super-giant or giant oil fields have been discovered in a long time. Cheap oil is gone. There’s still oil but it will cost.

    Likewise for coal. Still have lots, but its lower quality, falling btu energy (meaning more is needed) and not as clean.

    Interest rates?

    Market set rates? Yes. The economy will be on the path to a balanced productive economy; as much as it can be.

    However, the FED has used its powers to manipulate markets not balance the economy. They have roughly $10T in debt from purchases (“printing money”). Keep in mind the FED is not the government. It is the collection of U.S. banks, Morgan, Citi, Wells Fargo, et al. Ergo, that $10T is the debt of our banks. Literally the U.S. bank system is bankrupt.

    The Govs have $42T in debt and little enthusiasm for paying it down -except as Lampe notes by weakening the dollar, inflation. A massive hidden tax.

    Yields are rate of interest plus a nominal return. If inflation is today’s 8% and a return is 2% it implies today’s 30 year bond selling at $1,380 needs to drastically fall in price to reach 10%.

    As would all bonds. Mortgages, auto loans, construction financing rates skyrocket.

    The consequence of reversing interest policy is the exact opposite of reducing rates; rates down activity up; rates up activity down. In the $Ts it’s big time down!

    $42T and $10T of debt is economic activity taken from the near future. We’ve sacrificed those in the approaching years so that we can continue our current lifestyle. Party On has turned to the long hangover.

    Stock Markets?

    We are still near record highs.

    Markets (FED, Merril Lynch, …) continue to discount a growth economy. There is a nearly perfect correlation between economic growth and energy growth.

    However, industrial society as we know it is over; some day, soon, markets will discount a declining or negative growth economy.

    Because energy is in reverse, it is impossible for the economy to grow.

    Almost everyone has in their mind the stock market’s future will mirror its past. “It’s not guaranteed” but everyone believes it is over time. Unless you are very astute today, those 401ks are not gonna help you much, even if you are lucky enough to have job.

  • South Carolina says:

    Who are the people that “approve” of the job Biden is doing? The polling data we see must be inflated. I can’t think of one beneficial thing Biden has done as president or senator.

    Inflation is by design to crush people and drive more government dependency. Just horrible, despicable people pushing this madness to support the left’s gospel of climate change.

    Most recent inflation numbers:

    Groceries +11.9% y/y –>Biggest inc. since 1979
    Chicken +17.4% ->Largest ever
    Restaurants +9% -> Largest ever
    Fuel oil +107% ->Largest ever
    Electricity +12% ->Largest since ’06
    Rent +5.2% ->Largest since 1987
    Airfare +37.8% ->Largest since 1980
    Services +5.7% ->Largest since 1990

  • South Carolina says:

    Who are the people that “approve” of the job Biden is doing? The polling data we see must be inflated. I can’t think of one beneficial thing Biden has done as president or senator.

    Inflation is by design to crush people and drive more government dependency. Just horrible, despicable people pushing this madness to support the left’s gospel of climate change.

    The whole “January 6th Hearings” are intended to distract you from all this:

    Groceries +11.9% y/y –>Biggest inc. since 1979
    Chicken +17.4% ->Largest ever
    Restaurants +9% -> Largest ever
    Fuel oil +107% ->Largest ever
    Electricity +12% ->Largest since ’06
    Rent +5.2% ->Largest since 1987
    Airfare +37.8% ->Largest since 1980
    Services +5.7% ->Largest since 1990

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