Inflation Makes a Liar out of Me.
"Let's finish this right here, right now," says congressman!
At least for now, inflation has made a liar out of me. I’d like to challenge it to duel as happened in congress in today’s news, but I think I’ll show proper restraint and think it over first.
To my readers, I’ll say I couldn’t have been more wrong on this week’s inflation call. Might as well call my own call as I see it the way I call everything else — no denial. If one is going to point out the predictions he’s made as they happen so people know what to track, one needs to be fair with his audience and equally point out the misses. As far I can see, there aren’t any caveats to give to cover the miss. Inflation was down … after three months of rising.
Stocks soared and so did bond prices (meaning yields plunged) on the news. The market even put in bets that the Fed will be doing four rate cuts in 2024. I think none is more likely and I stay with my belief that inflation is rising in the second half of the year as I thought it would. HOWEVER, I won’t count a minor three-month lift in MoM inflation as fulfillment of that prediction if it all turns out to be a three-month blip that went nowhere. My statement that there are no straight trend lines in economics holds true for inflation on the way down if the last three months doesn’t hold and inflation returns to a falling trend.
I do, however, see one person in the news today who says the rise in inflation has barely begun and has plenty in store for the upcoming year, making this month the blip in the wrong direction. I’ve decided I’ll wait until my my deeper dive to really dig into what happened in order to give it the time it merits and a little time for perspective before I comment further.
Fun with government funding
With that said, the other news today is that Democrats and Republicans may be coming together with enough support to fund the government by the end of the week. Still, it would not surprise me (or anyone) to see both sides fail to get to an agreement; so here is one particularly bad formation that can be foreseen as reasonably possible to start to materialize at the end of this week: (I said to watch for a burst upward in inflation, and it didn’t materialize; this might not either, as I’m not even saying it will; but, again, it is something to watch for.)
1. The federal government, divided as it is, does not find a way to agree on reducing spending and raising taxes (as happened under Gingrich and Clinton to achieve an actual surplus budget) at a level that takes deficits down enough to stop this debt spiral (let alone enough to end deficits).
2. Therefore, government debt keeps growing and likely rapidly.
3. The nation sinks into a stagflationary recession under the Fed’s tightening, reducing government revenue even further, making the debt spiral even worse.
4. Inflation remains high or even rises so that the Federal Reserve cannot do anything to help lift us out of recession or ease the government’s interest burden without sending inflation into hyperinflation. At the same time, the government cannot increase spending without making the debt significantly worse and receiving further credit downgrades as a result, which raise interest more, also making the debt situation worse.
This is the trap Fed and feds have painted us into from years of profligate spending and money printing to finance it all at artificially cheap interest that can no longer be sustained because inflation has us trapped. The wall we are backed up to and trapped against in all of this is inflation, which was created by all the profligate government spending financed with easy credit from the Fed.
This outcome was entirely and easily foreseeable; but people do not see what they do not want to see. Now we are forced to see it and deal with it, but we do not appear to have a government capable of facing the reality their policies created (on both the Right and the Left where each are still set on blaming the other while clinging to their cherished but errant beliefs).
Even if the government gets something together with the new speaker’s new two-phase funding approach, it only puts actually solving the problem down the road by another two months. It is not a solution, so all of the above could just be postponed until the next meeting where congress can't get its act together and government goes unfunded.
As evidence of the childishness in congress, one congressman in the news today challenged the Teamsters boss who was testifying in congress to fight it out in the backyard and got out of his chair and started rolling up his sleeves. That is what congress has come to — schoolboy fights to show their machismo, instead of intelligence.
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