WASHINGTON (AP) — Intensifying its fight against high inflation, the Federal Reserve raised its key interest rate Wednesday by a substantial three-quarters of a point for a third straight time and signaled more large rate hikes to come — an aggressive pace that will heighten the risk of an eventual recession.
Barring the kind of miracle that allows Jerome Powell to come to his senses, we very soon will be in a stagflation — a combination of stagnation and inflation — and Jerome Powell will not know what to do about it.
The past interest rate increases have done nothing to halt or even moderate inflation.So, Chairman Powell does the only “sensible” thing. He keeps doing what repeatedly has failed, praying that somehow, in some way, magic will happen.
He is not “heightening the risk of recession.” He intentionally is causing a recession. He says so himself but uses oblique language to describe it.
Trust me. I’m doing this to cure your acrophobia.
The officials also forecast that they will further raise their benchmark rate to roughly 4.4% by year’s end, a full point higher than they had envisioned as recently as June.
And they expect to raise the rate again next year, to about 4.6%. That would be the highest level since 2007.
By raising borrowing rates, the Fed makes it costlier to take out a mortgage or an auto or business loan.
Get it? To fight higher prices, the Fed will raise the prices of mortgages, autos, and business operations — and just about every other thing you wish to buy.
And some people believe this nonsense.
Consumers and businesses then presumably borrow and spend less, cooling the economy and slowing inflation.
“Cooling the economy” is the Fed’s way of saying, “causing a recession.”
Here is the definition of a recession: “a period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters.”
Sounds like “cooling,” doesn’t it?
Sadly, the Fed doesn’t have the courage or morals to tell the truth, which is that they want to cause a recession as a way to end inflation. So they say they are going to “cool” the economy”
What makes them feel the economy needs “cooling”?
One measure of the economy’s “heat” is unemployment. A “hot” economy should have low unemployment. According to the Fed’s metric, the Fed should raise interest rates when unemployment goes down.
Similarly, when unemployment rises, you might expect the Fed to cut rates We should see the unemployment rate and the interest rate move in opposite directions.
Is that what we see?
When unemployment (red) goes up, and the economy could use some stimulus, the Fed tends to raise interest rates (green), which is anti-stimulus. By the Fed’s own philosophy, interest rates should rise when unemployment goes down, But we see the opposite.
In short, the Fed is consistent. It consistently does exactly the opposite of what it claims the economy needs. The reason: The Fed focuses on the false premisethat inflation is caused by low interest rates and is cured by raising interest rates.
And as far as the economy needing “cooling,” what exactly does it mean? What does it mean for an economy to be too hot?
Here’s an interesting graph:
It shows one of the prime measures of economic growth, the annual change in real per capita gross domestic product. If anything should measure the “heat” of an economy, this is it.
A year ago, in early 2021, one might have said the economy is pretty “hot.” No longer. The economy now seems to be growing at a normal rate. So why does it need “cooling”?
Notice what happens before we have a recession. The annual change drops, which is exactly what the Fed wants to happen now.
I’ve been at this for twenty-five years, and I still don’t know what it means for an economy to be too hot. What I do know, however, is what causes inflation: Shortages of key goods and services.
Today, we have those shortages, not because demand is too great, and not because interest rates are too low, and not because the federal deficits are too high. We have shortages because the confluence of COVID, the Russian war, and reduced oil pumping caused supply to constrict.
Falling gas prices have slightly lowered headline inflation, which was a still-painful 8.3% in August compared with a year earlier.
Think of it. The Fed has raised the benchmark interest rate almost 4 points — a massive change — and inflation didn’t budge, but falling gas prices moved the needle. That tells you something about the ineffectiveness of interest rate changes.
Here’s another interesting graph. It compares inflation to oil prices:
The parallels are stunning. Inflation follows oil prices because oil affects the price of every other product. The price of oil is determined by supply and demand. Increase the supply, and inflation will go down.
The same is true regarding demand. Decrease the demand for oil, and inflation will fall. But short of causing a recession, how does one decrease the demand for oil? The only answer is something we are just beginning to do: Find substitutes for oil.
Most oil is used for energy, so businesses must expand production of solar, wind, nuclear, geothermal, and tidal energy sources — and this will require increased government spending and lower interest rates.
Speaking at a news conference, Chair Jerome Powell said that before Fed officials would consider halting their rate hikes, they would “want to be very confident that inflation is moving back down” to their 2% target.
He noted that the strength of the job market is fueling pay gains that are helping drive up inflation.
Powell, as an agent for the very rich, tells us that those nasty pay gains for the 99% are causing inflation. If only we could find a way to cut back on pay gains, all would be well.
“If we want to light the way to another period of a very strong labor market,” Powell said, “we have got to get inflation behind us. I wish there was painless way to do that. There isn’t.”
Translation: “The labor market is too strong. Unemployment is too low, and people are earning too much. So, I’m going to create a strong labor market by cutting economic growth. This will increase unemployment and cut salaries, which will be painful (to everyone but the rich).”
This is the logic that will help widen the Gap between the rich and the rest.
Fed officials have said they are seeking a “soft landing,” by which they would manage to slow growth enough to tame inflation but not so much as to trigger a recession.
Yet most economists are skeptical. They say they think the Fed’s steep rate hikes will lead, over time, to job cuts, rising unemployment and a full-blown recession late this year or early next year.
Job cuts, unemployment and a full-blown recession are exactly what the very rich want. Their incomes won’t be hurt. They won’t be fired. Their pay won’t be cut. And they’ll buy bonds paying higher interest.
Meanwhile, the working class will suffer, the Gap will widen, and all will be well with the world.
“No one knows whether this process will lead to a recession, or if so, how significant that recession would be,” Powell said at his news conference. “That’s going to depend on how quickly we bring down inflation.”
The way to bring down inflation is to cure the shortages that are causing inflation, not by causing a recession. The federal government needs to support farming, transportation, and the manufacturing and service industries.
One way: Cut business costs. Eliminate FICA and provide free health care insurance to every man, woman, and child in America. This would substantially reduce the cost of running businesses.
Eliminating FICA instantly would cut the prices of all goods and services. It’s a quick first step, easily done. Simply stop collecting the tax and have the government pay for Social Security and health care insurance.
In their updated economic forecasts, the Fed’s policymakers project that economic growth will remain weak for the next few years, with rising unemployment. They expect the jobless rate to reach 4.4% by the end of 2023, up from its current level of 3.7%.
This is the cure for inflation?? Weak economic growth and rising unemployment for years??? Some might say the cure is worse than the disease. That’s the best the Fed can do?
Historically, economists say, any time unemployment has risen by a half-point over several months, a recession has always followed.Fed officials now foresee the economy expanding just 0.2% this year, sharply lower than their forecast of 1.7% growth just three months ago. And they envision sluggish growth below 2% from 2023 through 2025.
That gloomy forecast seems about right based on the reluctance to increase federal deficit spending and the plan to repeatedly increase interest rates.
Even with the steep rate hikes the Fed foresees, it still expects core inflation — which excludes the volatile food and gas categories — to be 3.1% at the end of next year, well above its 2% target.
Translation: “What we’re doing won’t help much, but it will hurt you, and most importantly, it will make you believe we’re doing something.
Powell acknowledged in a speech last month that the Fed’s moves will “bring some pain” to households and businesses.
Pain to the working class but not the rich — that’s the goal.
Inflation now appears increasingly fueled by higher wages and by consumers’ steady desire to spend and less by the supply shortagesthat had bedeviled the economy during the pandemic recession.
Utter nonsense. Prices can’t rise without supply shortages. But yes, reducing the cost of labor will help reduce inflation. And that can be accomplished by eliminating FICA while providing health care insurance to everyone.
Some economists are beginning to express concern that the Fed’s rapid rate hikes — the fastest since the early 1980s — will cause more economic damage than necessary to tame inflation.Mike Konczal, an economist at the Roosevelt Institute, noted that the economy is already slowing and that wage increases — a key driver of inflation — are levelling off and by some measures even declining a bit.
Part of the problem is a false belief that some economic damage is necessary to tame inflation — the false belief that the medicine must be bitter.
Even at the Fed’s accelerated pace of rate hikes, some economists — and some Fed officials — argue that they have yet to raise rates to a level that would actually restrict borrowing and spending and slow growth.
Translation: “The purpose of raising interest rates is to restrict borrowing and spending and to slow growth, but that won’t work.”
Huh?
Many economists sound convinced that widespread layoffs will be necessary to slow rising prices.
Translation: “It’s all the fault of the working class. They are making too much money. We’ll have to starve them a bit to control inflation.”
Research published earlier this month under the auspices of the Brookings Institution concluded that unemployment might have to go as high as 7.5% to get inflation back to the Fed’s 2% target.
SUMMARY
Interest rate increases will not reduce inflation. They will cause stagflation, courtesy of the Fed, who will blame it on the working class making too much money. The Fed will not blame the very rich for making too much money. The Fed knows who their bosses are.
Rodger Malcolm Mitchell
Monetary SovereigntyTwitter: @rodgermitchellSearch #monetarysovereigntyFacebook: Rodger Malcolm Mitchell
Stated simply, the Big Lie in economics is: “Federal taxes fund federal spending.” Suckers believe it.
The Big Truth in economics is: Federal taxes don’t fund a damn thing. In fact, they are destroyed upon receipt at the Treasury.
No federal tax dollars are spent. The federal government creates new dollars, ad hoc, to pay all its bills.
The federal government never can run short of dollars. It has infinite dollars. Even if the federal government didn’t collect a penny in taxes, it could continue to spend, forever.
From the TV show 60 Minutes: Scott Pelley: Is that tax money that the Fed is spending? Ben Bernanke: It’s not tax money… We simply use the computer to mark up the size of the account.
To the federal government, which created the first US dollars from thin air, dollars are not physical things. They simply are numbers on balance sheets, and the government controls the balance sheets.
The government can put any numbers it wishes on those balance sheets. In short:
The government never can run short of numbers
The government never can run short of laws.
The government never can run short of dollars.
If you sent $100 trillion dollars to the federal government, it wouldn’t help to pay for anything, not even one little bit.
In the letter, dated Monday, the governors wrote that they “fundamentally oppose (Biden’s) plan to force American taxpayers to pay off the student loan debt of an elite few.”
Calm down, fellow taxpayers; we won’t pay anyof that student loan debt.
So why does the GOP claim it? Because they want you to help them widen the Gap between the rich and the rest of us
Note the words “elite few” in their letter? That’s part of the GOP con job. The party that gave a giant tax break to the rich wants you to believe they are all for the poor.
No, they don’t want the poor and middle classes to be able to afford college at all. They want the only people to afford college to be the “elite few.”
They create a phony culture war to make you believe the federal government can’t afford to pay for your benefits.
The rich falsely claim Social Security is going broke; Medicare is growing broke; the government can’t afford food stamps and other anti-poverty measures — and it’s all crap to widen the Gap.
Why widen the Gap? Because it’s the Gap that makes the rich rich. Without the Gap, no one would be rich, and the wider the Gap, the richer they are. Widening the Gap is a way for the rich to become richer.
The Republicans, including Texas Gov. Greg Abbott and Florida Gov. Ron DeSantis, also claimed that Biden’s plan would harm low-income families – writing, “hourly workers will pay off the master’s and doctorate degrees of high salaried lawyers, doctors, and professors. … Simply put, your plan rewards the rich and punishes the poor.”
What an ironic sham. Essentially, they say, “Federal aid to the middle and poor harms the middle and poor.” And people believe it!!
White House spokesperson Abdullah Hasan said, “These same Republican governors didn’t seem to object when their Republican colleagues in Congress passed a $2 trillion tax giveaway for the rich or had hundreds of thousands of dollars of their own small business loans forgiven.”
“While Republican elected officials try to keep working middle-class Americans in mountains of debt, President Biden is committed to delivering relief to the borrowers who need it most,” Hasan wrote in an email sent to USA TODAY Wednesday afternoon.
Hasan is absolutely correct. But so long as people believe the Big Lie that federal finances are like state and local government finances, and specifically, that federal taxes fund federal spending, the BIG LIE will continue to be told.
Federal taxes have three purposes:
To help control the economy by discouraging what the government wishes to limit and by encouraging what the government wishes to increase.
To provide demand value to the US dollar by required taxes to be paid with dollars.
And the most important one: To help the rich become richer by providing tax breaks available only to the rich. (which is how billionaire Donald Trump paid less taxes than you did.)
Hey, it works. The rich keep getting richer, and the suckers keep voting against federal spending that would help them.
Inflation is a general increase in the prices of goods and services. But what factors determine prices?
Economic growth: To lower prices, cut business costs. Recession: To lower prices cut business profits.
Sellers determine prices by answering the question, “What price would provide the most long-term profit?”
If pricing aims to maximize long-term profit, how is profit determined?
Profit is the difference between income and costs. The two ways to increase profit are to increase dollar sales and/or to decrease costs.This is all quite basic.
Pricing is constrained by costs, competitors, customers, and/or laws.
Costs generally set the lower boundary for pricing, as businesses only temporarily can allow costs to exceed total income.
The old joke, “We lose money on every sale, but make it up in volume” is just that. A joke, at least in the long term.
Competitors, customers, and/or laws set the upper boundary for pricing. Sellers set prices between the lower and upper boundaries by estimating where long-term profits are maximized.
Generally, sellers don’t cut costs just to be nice guys. Their sole purpose is to maximize long-term profits. If long-term profits were not a goal, sellers would have no motivation to cut costs.
This is all basic economics 101, yet economists seem to have forgotten that inflation is price increases and recession is economic growth decreases, and the two are unrelated. The opposite of inflation is not recession. The opposite of inflation is deflation.
You can have price increases with growth decreases, and that’s called “stagflation (stagnation and inflation).
And that is what the Fed and Congress are creating: Stagflation.
There are two ways to cut prices:
Cut business profits, which causes a recession, or
Cut business costs which encourages economic growth.
The best way to fight inflation, i.e. to cut prices, is to cut costs because higher costs lead to higher prices. An important component of most business costs is the cost of labor.
What if I told you there is a simple way to cut the cost of labor without cutting the number of employees or cutting pay scales?
Well, there is, and it is dead simple: Eliminate the FICA tax and provide free, comprehensive Medicare for All.
FICA costs employers 15,3% of all salaries under $143,000. This means, that for every salaried employee you, as the employer, pay as much as $22 thousand dollars per employee to the federal government. Those are dollars that come directly out of your profits.
They are non-productive dollars that must be made up with higher prices. They are inflation dollars.
And don’t think the employees pay any those dollars. If you, the employer, told your employees they no longer would have FICA deducted from their paychecks, you could lower gross salaries and still leave them with the same net salaries.
Employers pay the full 15.3% to the government.
As for health care, why has this become a financial burden for businesses? Why does your business pay for any part of health care insurance when the federal government can provide it? Those are lost, non-productive dollars.
And no, federal taxpayers do not fund federal spending. The government could provide Social Security and Medicare to every man, woman, and child in America without collecting a single dollar in taxes.
The federal government cannot run short of dollars. Not ever. Being Monetarily Sovereign, it has the unlimited ability to create U.S. dollars. It neither needs nor uses tax dollars.
The federal government’s trillions of tax dollars extracted from the economy are lost forever. Unlike state and local tax dollars, federal tax dollars are not recirculatedback into the economy. They are destroyed upon receipt.
The federal government always has infinite dollars, and adding tax dollars to that does not change how many dollars the federal government has.
IN SUMMARY
Inflation is a general increase in prices.
This increase always is caused by shortages of key goods and services, not by so-called “excessive government spending.”.
The Fed increases interest rates to ease those shortages by reducing demand, but reduced demand is the definition of recession. Thus, the Fed tries to cure higher prices by causing a recession.
The non-recession way to reduce higher prices is to reduce shortages and business costs.
Shortages can be reduced by more federal spending to acquire or encourage the production and distribution of scarce goods and services.
Business costs can be reduced by reducing employment and business taxes. When a business pays less in taxes, its prices can be lowered while generating the same desired long-term profits.
The instant solution to inflation is to eliminate FICA taxes and to provide free Medicare to every man, woman, and child. This will reduce business costs, allowing businesses to lower prices.
The long-term solution to inflation is for the federal government to address shortages by investing in the production and distribution of scarce items: Renewable and nuclear energy, shipping (roads, ships, railroads, airplanes), food, water, computer chips, lumber, and lower federal taxes on businesses and individuals below the upper-income group.
Federal taxes and interest rate increases are recessionary and do not prevent inflation.
Based on the Fed’s reliance on interest rate increases to combat inflation, I predict we will have a long period of stagflation until business profits increase sufficiently to cause business growth.
Does this sound painfully familiar? It is the new conservative explanation for past, present, and future losses. Apparently, the U.S. isn’t unique in having to deal with fascists.
Kate Linthicum, Los Angeles Times
RIO DE JANEIRO — Standing atop a trailer with the Atlantic Ocean behind him, Brazilian President Jair Bolsonaro complained to a crowd of roaring supporters about a vast conspiracy against him.
Two women carried a banner calling on the armed forces to “protect our constitution, our liberty and our elections.” Demonstrators griped about “fake news” and the journalists who had slandered their candidate.
Bolsonaro had summoned tens of thousands of his supporters to this city’s signature Copacabana beach Wednesday to protest what he insisted was a rigged vote. Never mind that the election hasn’t actually taken place yet.
For months, Bolsonaro has been preempting his own expected loss in October’s presidential vote by borrowing from the playbook of former President Donald Trump, whom he describes as his “idol”and with whom he shares several political advisers.
He has repeatedly criticized the integrity of Brazil’s voting system and has suggested that he may not accept the results of the election,which most polls predict he will lose decisively in a runoff with former President Luiz Inacio Lula da Silva, known as Lula.
Is it possible that Balsonaro also has started a fake university like Trump, cheated on his taxes like Trump, and cheated on his three wives?
Oops, believe it or not, this guy has had 3 wives, just like Trump!
“If needed,” Bolsonaro has said, he and his supporters “will go to war.”
What exactly that means is anybody’s guess. Some analysts fear that Bolsonaro, a former army officer who praises Brazil’s not-so-distant military dictatorship, could be plotting a coup or an insurrection modeled on the attempted takeover of the U.S. Capitol by supporters of Trump.
Attention, MAGAs. Bolsonaro is the perfect guy for you. Please move to Brazil, and save the sane Americans more grief.
They place Bolsonaro among a global tide of leaders with authoritarian leanings who have weakened democracies in recent years, from Hungary to El Salvador.
“We have learned the hard way over the years to listen to these kinds of leaders when they tell us what they’re going to do,” said Brian Winter, vice president for policy at the Council of the Americas, who predicted that Brazil is headed for “an institutional crisis.”
With the president and his family members facing a number of corruption investigations, Winter said, “Bolsonaro has a lot to lose.”
Hmm, corruption investigations, just like Trump.
Many here believe that if Lula wins — polls currently show him with a 10-point lead — a peaceful transition of powerwill depend on the depth of Bolsonaro’s backing within the military — and the reaction of his supporters.
Trump, like Bolsonaro, wanted to hold a vast military parade, but the generals wouldn’t do it. Thank goodness our military leaders recognize Trump for the psychopath he is and didn’t go along with his lies. Very Hitlerian.
Bolsonaro criticized efforts to legalize abortion, complained about what he calls “gender ideology” and warned that if the left takes power, Brazil will become like “Venezuela and Nicaragua.”
He called the opposition “evil” and warned that his rival would flout the constitution.
And the beat goes on. The parallels between Trump and Hitler and Mussolini are remarkable.
Not unlike the United States, political polarization has risen markedly here over the last decade, with political conflicts and culture wars shattering friendships, ruining family gatherings and on occasion spilling violently into the streets.
IF IT ALL SOUNDS FAMILIAR, IT IS FAMILIAR. NOTHING IS NEW
Trump’s followers believe they have discovered the final solution and that Trump would save them from the “swamp.”.
Through the centuries, all dictatorships begin and end the same way. They start with a man, usually a man, claiming that times were great in the past and things are terrible now, but he can make them great again.
Whether the soon-to-be dictator courted communists, fascists, Maoists, religious extremists, or conservative extremists, the problems always were blamed on “outsiders” or those who were “different.”
Hitler and Mussolini had the Jews and Gypsies. Stalin had the “Bonapartists,” Mao had the “intellectuals,” and Trump has his Mexican and Muslim immigrants to blame.
All dictators love the military, for it is the military that could aid, resist, or depose them. Trump loves the trappings of the military so much that he wanted to have that massive military parade in his honor. Strangely, he dissed the families of soldiers and the soldiers themselves who had died in service.
All dictators trust no one. They surround themselves with weak, immoral incompetents, often relatives, who would not be a threat to their own power.
Trump’s astoundingly long list of the weak, inexperienced, immoral, incompetent, or convicted swamp characters includes Joe Arpaio, Conrad Black, Ben Carson, Michael Cohen, Chris Collins, Dinesh D’Souza, Scott DesJarlais, Michael Flynn, Rick Gates, Dustin Heard, Duncan Hunter, Jared Kushner, Evan Liberty, Paul Manafort, Tom Marino, George Papadopoulos, Lynne Patton, Rob Porter, Scott Pruitt, Tom Reed, Wilbur Ross, Nicholas Slatten, Paul Slough, Steve Stockman, Roger Stone, Ivanka Trump, and Alex van der Zwaan.
Some he pardoned to gain their loyalty. Even today, he promises to pardon the felons who invaded Congress, threatened the life of the Vice President, and tried to overthrow the U.S. government. Trump claims these traitors are “badly treated,” though people have spent decades in jail for less serious crimes.
Dictators get very rich and keep close to a few who become very rich. We see it in Russia’s oligarchs and China’s billionaires. All are pals of the leader. The rest of the country suffers because dictators don’t care about the country but about personal power.
In short, Trump is nothing new.
He follows the modus operandum of all the dictators. And the MAGAs are not new, either. They follow in the footsteps of those who believed what Hitler, Stalin, Mussolini, Mao, Kim, Castro, et al. told them.
The outcome is always the same: A brutal dictatorship overthrown with much bloodshed and replaced by an even more brutal dictatorship.
Message to the MAGAs: When the dictator gains power, his followers are not spared. They suffer the same brutality as the rest of the population.
Be careful what you wish for and open your eyes. Dictators are psychopaths. None of them have mercy or loyalty. Trump is a proven psychopath.
What you do for Trump will not be rewarded or appreciated by Trump. You will be punished with the rest of us.
It shows one of the prime measures of economic growth, the annual change in real per capita gross domestic product. If anything should measure the “heat” of an economy, this is it.
A year ago, in early 2021, one might have said the economy is pretty “hot.” No longer. The economy now seems to be growing at a normal rate. So why does it need “cooling”?
Notice what happens before we have a recession. The annual change drops, which is exactly what the Fed wants to happen now.
I’ve been at this for twenty-five years, and I still don’t know what it means for an economy to be too hot. What I do know, however, is what causes inflation: Shortages of key goods and services.
Today, we have those shortages, not because demand is too great, and not because interest rates are too low, and not because the federal deficits are too high. We have shortages because the confluence of COVID, the Russian war, and reduced oil pumping caused supply to constrict.
The parallels are stunning. Inflation follows oil prices because oil affects the price of every other product. The price of oil is determined by supply and demand. Increase the supply, and inflation will go down.
The same is true regarding demand. Decrease the demand for oil, and inflation will fall. But short of causing a recession, how does one decrease the demand for oil? The only answer is something we are just beginning to do: Find substitutes for oil.
Most oil is used for energy, so businesses must expand production of solar, wind, nuclear, geothermal, and tidal energy sources — and this will require increased government spending and lower interest rates.
