FEDERAL AGENDA SPENDING + FEDERAL RESERVE BLUNDERS = GOVERNMENT DISFUNCTION + MORE ECONOMIC PAIN

As discussed in a number of papers posted in georgeeconomics.com (e.g., Double Dip Recession), the root causes of the present inflationary environment are directly attributable to the following primary factors:

1. The political left’s war on fossil fuels

2. Way too much money awash in the economy (unnecessary quantitative easing)

3. Ridiculous spending by the Biden Administration

4. Federal Reserve late to the game regarding inflation

5. Refusal to consider supply side incentives to help rebalance supply and demand

Since 2021 the far left has been in the driver’s seat in Washington DC and the continuation of agenda driven excess spending by the Biden Administration has destabilized the economy. In 2021, with the blessings of the Federal Reserve and the US Treasury (Jerome Powell and Janet Yellen) the Biden Administration went on a reckless spending spree that resulted in record inflation. Powell and Yellen together spread untold amounts of “pixie dust” in the form of a transitory inflation myth that was repeated and spread through the media until the damage was to great to ignore. Once the transitory inflation myth imploded at the end of 2021, the Federal Reserve under the myopic direction of Powell reversed course and raised the benchmark interest rate 0.75% three times and 0.5% once during 2022 and finally in the second half of the year made some headway reducing the amount of the money supply (via quantitative tightening). If Powell had a sufficient amount of economic savvy and intestinal fortitude he would immediately started puting pressure on the Biden Administration to reverse their spending policies and decrease taxes to spur supply as specified by both Keynesian and Classical theory in the case of recession, which is now likely to be an ongoing “double dip” event.

Instead of living and dying by strict adherence to demand side monetary and fiscal policy measures, which is guaranteed to create massive economic volitivity when far left politicians are given “carte blanche” ability to spend, supply side stimulus rather than trashing the economy though massive interest rate increases, would be a far better approach to rebalancing aggregate supply and demand. As mentioned above, before all of the present actions of the Federal Reserve are completed, the economy is likely to be ground to a virtual halt and a vast majority of the population will have experienced a double dip recession, regardless of the incantations and prescriptions of the National Bureau of Economic Research regarding recession. The gurus and pundits in Washington and New York will be happy to declare anything other than a severe recession a soft landing, while middle and lower income individuals and families are strangled and viewed as a statistic by the political elite.

In effect, the country is suffering from a clinical example of government disfunction. Aside from the fact that the entire set of problems relating to inflation, Federal Reserve missteps, massive agenda driven federal overspending and recession, have been unnecessary politically driven, self inflicted wounds, one would think that once the situation has become critical and blatantly obvious, an “all hands on board” effort would be forthcoming. That, however, is not even remotely the case given the totally irresponsible green agenda driven spending policies of the Biden Administration. Their continued push to spend as much as possible prior to the Republican takeover of the House of Representatives works counter to the tightening policies of the Federal Reserve. This effort to guarantee excessive spending through 2023 is being formulated in the form of a year end (2022) omnibus bill. This bill will guarantee excessive transfer payments with the added giveaway of welfare without work restrictions during 2023, along with guaranteed funding of all of the over the top green spending perpetrated in earlier legislation. The result is bigger government, a lower labor force participation rate, and greater inflationary pressure, the cost of which is covered by the free market and tax payers. All of this spending will force the Fed to be even more aggressive over a longer period of time. In other words, the Biden Administration’s spending effort will run counter to the task of the Federal Reserve relating to inflation. The ultimate result is that the private sector suffers and working folk are poorer.

The present economic situation we find ourselves in makes no sense, but that is to be expected when politicians go crazy when they have the ability to push their spending agendas that please their constituents, but are bad for the overall economy. As a final point of curiosity and clarity, Powell recently noted that the ideal, “goldilocks” period for the Fed was during 2019 and first half of 2020, before the onslaught of the pandemic and the consequent crush of emergency transfer payments, when interest rates were low, growth was strong and employment and real wages were at record highs. He failed to mention that this was during the Trump Administration when pro-growth policies were in place, the country was truly energy independent and the free market was relatively untethered (subdued regulation). Elections have consequences. An extremely disruptive pandemic ‘donated’ to the world by Communist China, political winds, a left leaning media, a left leaning bureaucratic government complex, coupled with the highly explosive, erratic personality of Donald Trump has brought us to where we are. The strength of the economy leading into the pandemic has kept us afloat in spite of all the agenda driven blunders of the Biden Administration, but that may not have legs if the voting public does not realize why they are suffering and what is at state, and if they are misdirected by the distortive lens of the left leaning media.