So said the nurse in 1982 just before my 2nd visit to Africa. She was giving me a gamma globulin shot as a prophylactic against jungle diseases. It hurt. A lot.
This won’t hurt a bit. So said the Federal Reserve and the Treasury between 2022 and 2024 as they first raised interest rates, then dropped them. It hurt, but the media refused to acknowledge what we all knew in the supermarkets, farms and schools across the nation.
We saw prices rise for virtually everything. Fortunately, so did our home values, 401-k values and investment portfolios. For those of us with such capital we survived. For those with less, the cost of living became more painful. Maids. Gardeners. Service workers. Bus drivers. The massive underclass from which we all came.
The Ancient Regime is gone. The New Regime is here. For better or for worse? Only time will tell. The new sheriff in town is demanding yet another drop in interest rates.
Although he is a Wharton Graduate School alumnus, he appears to have forgotten his Econ 201 lessons. Inflation is first and always a result of an easy monetary policy. Too many dollars in the economy forces demand increase. Cost increases follow suit. It ain’t rocket science, baby.
As they continue to rearrange the deck chairs, few are aware of the iceberg field lying just over the close horizon. This is not about politics. It is about economics.
Think of econ as a water system. The system is built to deliver water where it is needed. When the need increases, more water flows through the pipes. At some point, the pipes cannot accept any more without a change in pressure. That change is expansive. It requires either larger pipes or faster flow. Capital is the water. The Fed is the pipeline. We are the demand. The pressure is interest rates. The pipe breaks during a recession – or breaks down during a depression. The Fed maintains the flow monitoring system and Congress is the source of the supply.
A rough metaphor, certainly. but it suggests an image of the past century of capital flow. New pipe is added for new demand (consumers, factories, business.) Pipe is replaced when it wears out or with new technology – or should be.
Talk of other pipelines – gold, digitals, Euros, etc .- is intellectually interesting to some. But of no real consequence yet.
Moderating demand and supply appear to be the best answers. Congress reduces capital demand from excess spending (DOGE was created by Obama!). Consumers live within their means and reduce credit card, auto and home debt. Clinton reduced the Federal work force by 378,000.
Or we follow our own footsteps backward through the muddy sands of time to wash rinse, repeat: recession, unemployment, bankruptcies.
Unfortunately, the wall of the dam holding back the real flood, our $36 Trillion in U S government debt and $110 Trillion in local, business and personal debt, will not hold forever. When it breaks…
Eat wisely
Sleep well
Love with Abandon!
