Inflation or Recession? Yes!

 By Rich Kozlovich

 

I subscribe to John Mauldin's Thoughts From the Frontline which does extensive research on economic outcomes and good investing, often filling the articles with statistics, charts and econo-babble that easily make my eyes roll up into the back of my head.  Even with all this, I subscribe for two reasons.  I can still come away with an understanding of what he says and why he says it, and the subscription is free, so I recommend it. 

 

He posted this piece, Gradually Worse, on June 18th, and I thought it was very worthwhile discussing whether or not this inflationary trend will continue, and if this will all lead to a recession.  His view is all this depends on what the FED does saying:

 

This time last year, the great debate was whether inflation would be “transitory.” That question is now settled (Narrator: “It wasn’t transitory at all.”), we have moved on to debating what the Federal Reserve will do about it… and can do about it.

The experts at the Strategic Investment Conference fell into two camps: The Fed will move either a) too fast and spark a deep recession, or b) too slow and let inflation get much worse. (There's a theoretical chance the Fed finds a perfect path in between, but I don't know anyone who seriously expects it.) That means we are heading somewhere unpleasant; the only question is what kind of unpleasantry we'll get.

My own opinion "admittedly in hindsight" is that inflation was already out of control before the debate even started. ............Jerome Powell's team kept emergency measures in place long after the emergency (at least the economic part of it) ended.

Now here's the part most people will cringe at.  He believes recession is preferable to inflation, and the fix to inflation.  Historically we must understand that recessions and depressions are the economic fix, and if left alone they hit bottom forcing people to make changes from what's being done to making the necessary corrections that lay the foundation for recovery, and now the FED raising interest rates is the start of that fix.  

He clearly feels this is what must be done, and I agree, which doesn't mean much other than I understand the history surrounding recessions and depressions having read extensively on how the stock market crash of 1929 started a recession, and might have been finished in two years, except for government interference by Hoover, and far more massive interference and out of control spending by Roosevelt turned it into the Great Depression, where the unemployment rate averaged 15 percent from around 1930/31 to 1942. 

Before the stock market crashed in 1929 the unemployment rate was around or under 2%.  After it crashed it only went up to 8%.  Most people didn't own stocks in those days, it was Hoover's Smoot Hawley Tariff bill that shot unemployment up to 15%, and in the next ten years it ranged from 9% to 25%, averaging 15%.

I remember the recession of the 70's and according to Mauldin we're now reaching the pain of that period involving the cost of the "four categories a typical household has little ability to control: utilities, gasoline, food at home, and electricity", and it must be understood any numbers shown by government entities using the Consumer Price Index to demonstrate otherwise is because they've changed how they calculate all this stuff making comparisons difficult, but that doesn't change reality.  Washington developed a system to lie to you about inflation.  The real inflation rate is much, much higher.    An apple is an apple and calling it a pear doesn't make it so. 

 

There are a lot of comparisons between what's happening now and in the 1970's, and while there were multiple factors involved (Including two stunningly incompetent Presidents, then and now) energy was at the heart of it then and it's the heart of it now, which his article covers with all the charts, the history (which is interesting for those who haven't read about this) and econo-babble that explains it.  But here's the thrust of his piece.  Inflation is here, it's not going away, or as Biden calls it "transitory", and there will be a recession, the only unanswered questions are how bad and for how long.  

 

The price of homes is dropping, and one thing I think I can assure everyone is the price of housing is going to drop like a stone.  Mortgage interest rates have doubled, and I think it's clear that's the tip of the iceberg.

 

Between the folly of all these covid restrictions, maskand pandemic hysteria, job losses and business closings, all completely unnecessary, these lost jobs and businesses are not returning any time soon, and now we have sudden adult death syndrome.  Clearly being caused by all these false vaccines, which in my view is our thalidomide era, only far worse as this is going to impact the heath of billions for decades to come, not to mention the economic impact this will cause.  We're looking at long term negative economic and social consequences. 

 

Spending at the federal and state levels was out of control before, and as hard as it is to believe, spending and the demand for new taxes has spiraled out of control possibly beyond fixing, and we now have a 30 trillion dollar national debt.  People will not be buying homes in spite of the massive decreases in the price of houses.  

He concludes with these thoughts.  When comparing a hard attack on inflation, which causes a great deal of economic pain but restores normalcy more quickly, and the gradual attack on inflation, which carries the problem of long term "gradual" pain that can lead to far more pain than can't be planned for as was the case in the 70's, saying: 

 “Economic life is subject to all sorts of surprises and disturbances—business recessions, labor unrest, foreign troubles, monopolistic shocks, elections, and governmental upsets. One or another such development, especially a business recession, could readily overwhelm and topple a gradualist timetable for curbing inflation. That has happened in the past and it may happen again.”

None of this analysis is encouraging when you have an administration full of strange incompetents who've reached peak Peter Principle levels of incompetence and intellectual corruption, along with a host of other radical appointees, but it goes far beyond incompetence.   We are now a nation being led by lost worshipers at the secular neo-pagan alter of leftism, wandering in a moral wilderness following concepts that have been proven failures forever.

 

“We have no government armed with power capable of contending with human passions unbridled by morality and religion . . . Our Constitution was made only for a moral and religious people. It is wholly inadequate to the government of any other.”  John Adams, 1798

 

Couple that with even worse levels of incompetence and corruption of a Congress being run by a party not one trusts, and being controlled by Pelosi and Schumer, both of whom believe huge spending increases is what will fix the economy.  

 

Along with increasing taxes, more regulations, destroying the ability to drill for oil which has taken us from an energy independent nation and exporter to a nation with shortages causing huge increases in the cost of gasoline, pushing utterly insane and destructive "green" energy policies.  Policies that seriously effect the poorest members of society, even threatening the nation with black outs this summer.  

 

Are we really surprised all this is causing high food prices and shortages?   We're seeing being put into effect the usual pattern of leftist governments.  Oppression, thought control, abandonment of the rule of law, improper prosecutions amounting to political persecution, rationing, shortages, spying, deprivation, misery, suffering and early death, all of which are the real facts of life socialism brings to humanity. 

 

All of this leaves little room for optimism.  

 

And that doesn't even include all the other foundationally insane positions they take regarding trade, immigration, social issues and foreign policy.   Policies that will haunt the nation for years to come, and let's face it.  Policies that are often in violation of American law, which means America is now being run by criminals who are using the forces of government to impose their destructive criminal activity on America. 

 

I'm about to break out in hives for saying this: There actually is an upside to this, and here are the upsides: 

• The rest of the world is worse off, and any clabber about China, Russia, the UE and any other economic entity that claims otherwise is lying. 
• Ultimately, America has the formula for the fix.  That formula will start to take effect on January 3rd, 2023, and continuing on January 20th 2025, with a President who will be unafraid to say and do what needs to be done, without one iota of concern about what the left or the media says.
• Globalism is now been shown to be a failure, and globalism's failure is America's success.

From my perspective, here's what it comes down to.   If we have a choice between them and us, I'm all for us. The left isn't just wrong, it really is evil.  Be ever vigilant, leftism is a metastasizing cancer that never sleeps, is always mendacious, unendingly insidious and ultimately destroys all it touches and controls.  

That's history, and that history is incontestable.