Tag Archive for: CausesOfInflation

The Everything Bubble Is Imploding

Estimated Reading Time: 5 minutes

A few years ago, some smart observers popularized the phrase “the everything bubble” to describe the behavior of the financial markets.

Years of zero interest rates and bank reserve expansion through the Federal Reserve’s policy of Quantitative Easing set off a wave of asset price inflation.  Fiscal policy (Federal spending) was aggressive as well. Oddly, consumer price inflation remained subdued.  Governments and economists became confident that inflation was not a problem, but that deflation was a problem.

While it seems like yesterday, under the final year of the Trump Administration, the Consumer Price Index was climbing around 1.5% per year.  This was largely because the CPI does not track asset price inflation well and undercounts the influence of housing costs by using a rental imputation number rather than actual housing costs.

You might recall, that the FED complained about disinflation and stated its goal was to take inflation above the 2% level.  Looking back, it seems foolish that they got what they were asking for and more.  Further, when it became evident something was going wrong, both the politicians and the FED argued that inflation was “transitory.”

Ultra-low interest rates promoted the use of borrowing by consumer for goods like autos, housing, and financial speculation.  Conventional margin debt soared, and a host of new speculative products emerged: leveraged ETFs, SPACS, cryptocurrencies, and NFTs. Brokerage houses promoted asset-backed lending such as borrowing on your stock account to buy real estate or other assets.

Then along came lockdown. The policy of lockdown, an ill-considered reaction to the Wuhan virus, then set into motion a number of conflicting trends.  Perhaps the most important was the direct injection of money into the hands of the public and the same time shutting down production by the closure of business and the quarantining of the healthy workforce.  This injection of money created out of thin air was felt necessary to offset the negative effects of the government-mandated lockdown. 

One good disaster deserves another.

Since this was fiscal stimulus transmitted directly into the bloodstream of the economy, rather than the earlier expansion of bank reserves through QE that largely remained in the banking system, the money supply boomedAt the same time, supply was constrained as both US production and most of the foreign products that we import, were shut down.

The result was too much demand was created and too little supply was permitted.  The result now has been double-digit inflation caused by both monetary expansion and supply constraints.

Even as late as last year, equity prices soared 28% and gold prices tested their all-time highs, and went to new highs in many foreign currencies.  Commodities soared and “the everything bubble” got larger and larger.

The government has continued the supply constraints, even beyond the lifting of lockdown.  This has come primarily from the attempt to alter the climate of the earth over the next one hundred years.  The result has been to restrict the production of cheap reliable energy sources in favor of untested and uneconomic alternatives of wind and solar, and the attempt to mandate a revolutionary change in transportation by forcing both through law and incentives, the adoption of electric vehicles.

This has driven up the price of fuel, the cost of farming (fuel and fertilizer), the cost of everything made from petroleum (over 6,000 products ranging from plastic pipe to adhesives), and the cost to transport everything that needs transporting to grocery store shelves and warehouses.

In short, the supply constraint on energy is a supply constraint on many other things.

Lockdown thoroughly screwed up the labor markets.  Millions of workers left and never came back.  Wage levels thus moved sharply higher and labor shortages are reported in many sectors of both production and services.

The result has been both asset price inflation and consumer goods inflation.

Reacting to the inflation they unleashed, the FED belatedly increased interest rates and started QT, or Quantitative Tapering, the selling of central bank reserve assets.  The rate of change in the growth of the money supply is coming down rather quickly.

As a result of the new monetary dynamics, portions of the everything bubble are now starting to break and go in the other direction.

Beneficiaries of the cheap money regime have become victims of its removal.  The benefit of financial leverage (the use of borrowed money to control more assets than you could afford to buy with cash), is now starting to work in reverse.  We are now leveraging the downside losses.

Stock prices have declined into bear markets, bonds have had the worst year since 1788, and many commodity prices, that were soaring just months ago, are coming off their peaks pretty violently. Cryptocurrencies have dropped 70-80%, which are losses equal to or greater than some of the great bear markets in equities.  Precious metals have fallen as well.

Commodity prices directly connected to economic activity are now dropping sharply.

Copper prices, you would think would be a direct beneficiary of the government-forced technology changes for transportation.  But copper has dropped almost 40% from its recent peak just since March.  Lumber prices, directly related to the housing boom, have fallen 55% from their peak in January.  Shipping costs, once soaring, have reversed and are falling rapidly.  The Baltic Dry freight index is down 65% from its recent peak. Container rates for the traffic between US West Coast ports and China are down nearly 50%.

Housing prices are now beginning to wobble and we have covered this development extensively in The Prickly Pear, largely through our friend Wolf Richter and his columns.

In short, many key commodity prices are now taking some serious hits and housing is likely to follow stocks, bonds, and commodity prices to lower levels. Housing is highly leveraged with the typical 3% down mortgage more leveraged than commodity futures.  This has the capacity to throw our banking system into turmoil.

This is already evident in China, whose housing bubble is collapsing and bank runs are publicly evident.

As the everything bubble implodes, it is hard to know which sector will go next.  The biggest danger is likely the real estate markets because so much of consumer wealth is tied up there and “feelings of consumer wealth and prosperity” are tied to housing.  This could cause stress in the banking system, but also cause the feeling of “wealth loss” to cause consumers to pull in spending.  Consumer spending is 70% of GDP.

All of this combined creates a real risk of slipping into recession, or worse.

What a problem now for the FED!  If they stay the course to crush inflation, they may become a pro-cyclical force.  In short, they will make the coming recession that much worse.  This is called a policy error, which seems too mild of a term.

If they reverse course and take a monetary U-turn before inflation is vanquished, they run a risk not only to their credibility but risk high inflation in the midst of contraction; call it stagflation on steroids.

Meanwhile, the supply constraints on energy continue with a religious fanaticism by Progressives that rivals the Medieval church.

We even see signs of an inquisition of sorts, that is the punishing of heretics that don’t believe the global warming story.

It seems Wall Street is betting on a soft landing or a U-turn in policy. Stock prices are starting to stabilize a bit and bond prices have actually bounced.

A soft landing would be a nice outcome, but the sharp break in commodity prices suggests it will be a harder landing than expected.

The problem is we rely on the same geniuses who thought inflation at 1.5% was unacceptable, who thought huge deficits didn’t matter, and who think environmental fanaticism will have no consequences.

Good luck with that.




Want to Understand the Inflation Problem? Look to Harvey Road, Not Pennsylvania Avenue

Estimated Reading Time: 4 minutes

As news headlines have reported, the US economy today suffers its worst inflation in two generations. Not coincidentally, US public debt is also at its all-time high. As if on cue, opposition pundits are blaming the Biden administration, whose apologists, in turn, blame Russia and corporate greed while touting the success of Washington’s $5 trillion in recent crisis spending. This partisan and ideological bickering misses the central point.

Some economists know better than to treat today’s economic woes as a partisan problem with roots in the 2020 election. Alan Blinder of Princeton University, for example, has for several years complained that politics gets in the way of smart ideas. Professor Blinder’s “lamppost problem” suggests that we would not be here had past policies not fallen victim to the politicization of ideal economics. Moving forward, mainstream economists join Professor Blinder in saying that we now must aggressively neutralize politics, unchain the ideas of intellectual elites, and finally—hallelujah!—let smart policies rule. Never mind that these same economists have admitted fault for getting it wrong, thus vindicating the steady analyses of AIER’s Sound Money Project directed by Will Luther.

Let’s be honest. Even gifted Ivy League economists must have trouble keeping a straight face while recommending that we take politics out of the equation. This is America, after all. Aren’t we the world’s shining exemplar of political inclusion? Sure we are. Yet puzzlingly, there is a long line of thinkers who say that we should replace politics with the judgment of elites. In today’s monetary and fiscal policy, this thought goes back to at least the days of John Maynard Keynes.

On the eve of the early 1980s high inflation rates, mainline economists James Buchanan and Richard Wagner drew attention to the rising debt and inflationary risks of the time. Their 1977 book carried the evocative title, Democracy in Deficit: The Political Legacy of Lord Keynes. Buchanan and Wagner’s prose minced few words, describing the Keynesian influence as the culprit behind “continuing and increasing budget deficits, a rapidly growing governmental sector, high unemployment, apparently permanent and perhaps increasing inflation, and accompanying disenchantment with the American sociopolitical order.”

Buchanan and Wagner argue that the post-Keynesian era suffers from the “presuppositions of Harvey Road.” Harvey Road is a reference to the Keynes family home in Cambridge. A biographer of Keynes, R. F. Harrod, coined this “presuppositions” expression, and Buchanan and Wagner use it to argue that Keynes’s economic theory operates in a political vacuum where the world of monetary and fiscal policy is carried out by wise men in authority. This intellectual aristocracy could ensure conditions of prosperity, freedom, and even peace. In 2011, after President Obama’s stimulus package, many remarked that “Keynes was back.” In reality, the Keynesian influence never died, and modern macroeconomists and policymakers still suffer from the presuppositions of Harvey Road.

Following Harrod’s description, today’s politicians, Federal Reserve officials, and mainstream macroeconomists still posture as enlightened, wise people, who therefore know from their expert analysis what is the best course of action. These elites are also trusted as benevolent people, therefore, they can be trusted to choose the course of action that is best for society. Finally, they are deemed reasonable people, therefore, they will seek to persuade one another and the general public that their chosen course is the best course. Is it just us, or does this 45-year-old description seem more apropos than ever in 2022?

While the proverbial lampposts might shine more brightly along Pennsylvania Avenue than along Harvey Road, let us not fall victim to casting central blame along the former. America’s fallible and often mistaken ruling elites have fanned the flames of today’s economic dumpster fire. It may be tempting to jump to the conclusion that we should replace the “intellectual aristocracy” with democracy. Again, this is America. But when you look closely at the history behind these problems, as we have done in our recent and ongoing work, it becomes clear that unchained democracy has been part of the problem, and crisis periods have justified all of us in treating the government as a fiscal commons.

Perhaps the central point for today’s inflation problem is that we cannot remove the political dimension, but we can better insulate our fiscal and monetary house from the foul sides of politics. One part of the course forward should be to replace trust in politics and elites with acceptance, followed by restraint. This requires recognition that politicians and ruling elites are neither angels nor wizards, and that voter demand for largesse deserves moral judgment alongside corporate greed. From the standpoint of a healthy economy, it is wrong for big business to rent-seek its way to corporate welfare. It is wrong for households to demand loose money to bubble up home values and retirement plans. It is wrong for politicians to take credit for loose budgets and every economic success while bickering over blame for their failures. And it is wrong for Fed officials to invent new instruments of control that transforms their jobs into old-fashioned central planning. Taking politics out means adopting ex-ante rules that retrain all of us from treating the government like a fiscal commons. Instead of replacing smart elites with unchained democracy, we should turn to “small c” constitutional constraint and republican governance. A bipartisan generation of loose money and loose budgets has created major negative spillover effects, and today’s inflation problem is what we all have to show for it.

Taking Buchanan and Wagner’s Democracy in Deficit seriously means putting the focus on political morality and institutional rules. These rules restrain discretion in monetary policy and limit both the scope and scale of fiscal policy. AIER’s Alex Salter and others are right that we need Milton Friedman back now more than ever. But even more so, we need Buchanan and Wagner to take front and center in the political and economic discussion.


This article was published at AIER, American Institute of Economic Research, and is reproduced with permission.

No, Putin Didn’t Cause Inflation

Estimated Reading Time: 3 minutes

The May 2022 Consumer Price Index (CPI) release was worse than virtually any forecast predicted. The year-over-year CPI came in at 8.6 percent, not only higher than expected but notching a new four-decade high. The month-over-month CPI (April to May) also came in higher than expected: 1 percent versus 0.7 percent surveyed. Today’s release makes clear that the Fed is behind the curve in terms of employing policy measures to blunt the rise in prices. The response from the Biden Administration, meanwhile, has been to blame Vladimir Putin(an easily disproved assertion) and weaponize rising prices in the service of interventionist policy measures.

It is worth noting that while the Fed was dithering–categorizing the rise in prices which began in the spring of 2021 as “transitory”–a litany of additional missions have been added to their already cumbersome mandate. Over the past few years, the Fed has been tasked to craft monetary policy in manners explicitly supporting social justiceclimate changeESG, and other political goals.

This is not particularly surprising, given the trend in mission creep since the Fed’s founding. At inception the Fed was tasked to prevent financial panics and bank runs. When millions of veterans returned from foreign battlefields after WWII, Congress added the requirement that the Fed should conduct monetary policy in such a way that employment conditions are maximized. In 1978 both “reasonable price stability” and the “maintain[ence] of long-run growth” were appended to the Fed mandate, and after the 2008 financial crisis financial stability joined the Fed’s list of responsibilities.

When, in addition to this, one considers attempts by recent administrations to appoint ideological candidates to the Fed, missteps, and failures become easier to explain. The considerable advantages of monetary policy over fiscal policy measures, in particular not having to go through Congressional horse-trading, make the incentives to influence the Fed readily apparent.

Just this afternoon during President Biden’s speech in Los Angeles, he referred to inflation, or at least the energy portion of it, as “Putin’s tax.” It is a demonstrably false characterization of the current inflation. In fact, by any number of measures prices began rising above trend in March 2021, almost a full year before the Ukrainian conflict began. A second, steeper uptrend in prices began in September 2021, six months before war broke out in central Europe. 

WTI & National Average Gasoline Price per Gallon, 2021 – present

(Source: Bloomberg Finance, LP)

The WTI price increase was mostly demand-driven: $47.47 per barrel in Jan 2021, and doubled to $95 per barrel by Feb ‘22. Since the war started, the price has risen to roughly $118 per barrel. The average US price of gasoline was $2.57 per gallon in January 2021 and reached $3.75 per gallon in early February 2022. Inflation more broadly was well underway by the end of 2021, but it was only in November that the Fed began to back away from its assurances that price level increases were transitory. Worse yet, it wasn’t until March 2022 that the Fed began to implement measures to arrest the rise in prices.

US CPI (yoy), 2021 – present

(Source: Bloomberg Finance, LP)

The May 2022 CPI numbers released today show that not only is inflation rising undeterred by the Fed, but worsening. More prices are rising more quickly, and possibly accelerating. The likelihood that the Fed will have to act aggressively enough that a recession result is materially higher now than it was even a few months ago. Allowing political officials to blame Putin, large corporations, shipping firms, billionaires, insufficient taxation, “greed,” or any of a number of other tired scapegoats misleads the public. It also distracts attention from the pernicious effects of a politicized and increasingly influenceable central bank.


This article was published by AIER, American Institute for Economic Research, and is reproduced with permission.

Markets Are Yelling Mayday

Estimated Reading Time: 3 minutes

Editors’ Note: As far back as last summer, The Prickly Pear began to warn about 2022 being a “risk-off” year.  Those elements of the economy, including stocks, bonds, cryptocurrencies, and real estate that have been elevated by easy money, will tend to suffer when the easy money is taken away. We are now well into the process as the author explains. However, market action will be uneven, and markets rarely decline without lots of zig-zag interruptions. Recent data suggest the market are for the moment getting very oversold, pessimism is running deep, and under those conditions, a contra trend rally or bounce can be expected. If we are correct that such a rally will ensue fairly soon, this may be the last opportunity for investors to sell into strength to make whatever asset allocations adjustments they and their advisor may feel necessary for their particular circumstances. However, in the somewhat longer term, all markets will have to adjust to a higher interest rate environment, less monetary stimulation, and likely a slowing economy.


An aircraft pilot about to crash will repeat the distress signal “Mayday.” Throughout the “May days” of this month so far, financial markets have been sending distress signals that may indicate an imminent crash of their own. The major stock market indices have all been experiencing steep sell-offs since May 4, extending a decline that began around the end of March.

Most analysts attribute the sell-off to inflation fears. Traders aren’t worried about how inflation will directly affect the economy, but how it will influence the decisions of a handful of bureaucrats. They fear that it will lead Federal Reserve officials to tighten the money spigot that is driving the inflation in the first place.

The Fed’s money pumping has driven up prices across the board, but especially the prices of capital goods (the value of which is derived from the value of the future consumption goods they will yield) relative to present consumption goods. That ratio, as Austrian economists explain, is the basis for interest rates. By distorting it with its money pumping, the Fed has artificially lowered interest rates so as to “stimulate” the economy.

This has been the Fed’s standard operating procedure since its founding in 1913, but it has precipitously ramped it up since the advent of Covid in order to prop up an economy staggering under the burden of draconian governmental responses to the disease.

If, as traders fear, the resulting inflation prompts the Fed to ease up on the money pumping, that will allow interest rates to rise by pulling out the props holding up capital prices at artificially high levels relative to present consumption goods. This upheaval in relative prices will translate into severe losses for most businesses, revealing that, lured by the Fed’s artificial stimulus, they had overextended themselves.

This general spike in market losses is what’s known as a “crash” and “recession.”

Wall Street is right to expect it, but it would be wrong to push for policies to forestall it, as it often does. A recession is a tough time, but it’s not a bad thing. The artificially inflated bubble was the bad thing. An economic bust is a necessary and beneficial repair of the economic distortion and damage that occurred during the deceptively pleasant artificial boom. The more you delay this repair, the more distortion and damage will accumulate, and the more painful the later repair will have to be.

The bust we need will be extremely painful because the Fed has been money-pumping at ever-increasing unprecedented levels and without stint since the financial crisis of 2008. But kicking the can down the road even further will only mean an even more painful bust when the Fed finally does relent.

And that’s if we’re lucky. If the Fed never relents, its policy will eventually result in hyperinflation, which can be a civilization-killer.

The market is crying out Mayday. Let it crash. And then let it rebuild and re-ascend sustainably under its own power.

The government got us into this mess, but only the market can get us out. And, as the poets say, the only way out is through.


This article was published by FEE, Foundation for Economic Education and is reprinted with permission.

The Democrat Playbook: How To Look Like You Are Fighting Inflation Without Really Trying

Estimated Reading Time: 5 minutes

“Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.”  Professor Milton Friedman


You want to bring down inflation? Let’s make sure the wealthiest corporations pay their fair share.  President Joe Biden

Inflation is the relationship between the quantity of money in circulation and the supply of goods and services.

Government and central banks can create money but they can’t create oil, copper, food, housing, hip surgeries, or Tootsie Rolls.  But government can create conditions that stifle the production of these things through taxation, regulation, import restrictions, and arbitrary credit restrictions.

The basic rule in dealing with inflation, if you are a Democrat, is to blame everyone, and everything, for the price spiral.  Never look at your own insane monetary and fiscal policy.  Then, start tinkering with the economy to show that you care.

Republicans have played the game as well, with wage and price controls by Nixon and WIN buttons (Whip Inflation Now) promoted by President Ford. But Democrats are better at the game.

Being old enough to remember the inflation of the 1960-1980 period, the tried-and-true response is to blame greedy corporations. From that follows the imposition of “windfall profits” taxes. Of course, inflation was only 1 ½% under Donald Trump, so corporations must have undergone tremendous change very quickly, with greedy people taking them over, just to frustrate Biden. That includes, of course, many of the “woke” corporations run by Progressives. They raise their prices as well.

Price controls are also part of the toolbox. Democrats know what the “just” and “honest” price should be, and thus they will attempt to fix prices to what they believe is the correct level.

The problem with price-fixing is well established since attempts go back to the Code of Hammurabi in Mesopotamia.

They were tried by Greeks and Romans, especially under Diocletian.

The Church (allied with the government) tried price fixing based on “the just” price during the Middle Ages.

Almost all Socialist governments do the same, to some degree or another. Things like the Medicare Codes, which fix the price for specific procedures, are a good example. So is rent control in Democrat-controlled cities like New York.

If you establish a price above what the market determines through free exchange, based on real supply and demand data, it will create surpluses.

If you fix prices below the real cost of production, based on free exchange and real supply and demand, you will create shortages.  This is the most common outcome.

A spinoff of shortages is long wait periods (waiting in the queue) or rationing, which is simply an attempt to equalize the misery of shortages.

An interesting book written during the last great inflation period was Forty Centuries of Wage and Price Controls by Robert Schuettinger and Eamonn Butler. The conclusion of the book, after exhaustive historical examples, is wage and price controls have never worked anywhere, at any time in history.

The reason they never work is that they never address the underlying causes of inflation, which is excessive government spending funded by monetary creation.

Price fixing inevitably leads to expansive and usually authoritarian government. For example, let’s suppose the government decides a particular item, let’s say milk, is vitally important to the population. So, they fix the price to stop public outrage.

To be even partially effective, you then must proceed to fix the price of dairy cattle, milking machines, barns, hay, farmland, farm labor, processing, transportation, and dozens of other price inputs that create what you see as the “price” of milk.

The price of anything is simply the sum of hundreds of prices of the applicable inputs. You can’t control one, without trying to control the others. Hence, attempts to control inflation through price control creates a gigantic and intrusive government that destroys the free market and its wealth-producing capacity. That is why Venezuela can sit on the largest reserve of oil per capita in the world, and be impoverished with oil over $100 a barrel.

The softer version of price controls is jawboning or attacking corporations for what the government has caused.

So, blaming corporations, taxing them heavily, and excoriating them in public (jawboning) should be expected.

Windfall profit taxes are likely as are price controls.

We may also see rationing.

Jawboning is an attempt to deflect blame onto someone else, typically business owners. Sometimes this gets very ugly when particular religious or ethnic groups are cited as exploiting inflation. Sometimes it has been Jews, sometimes ethnic Chinese,  Koreans in some neighborhoods, and sometimes kulaks.

Then, there is usually an attack on “hoarders”.

Hoarding is a rational response to expected shortages. Governments are against hoarding and prefer rationing. If you try to get supplies that you need, you are to be condemned as a hoarder. If your costs go up, you will be accused of exploitation and price gouging if you pass those costs along. If you correctly anticipate inflation and profit from it, you will be called a speculator. In all these cases, the government simply blames individuals and corporations for responding to something the government itself caused.

Finally, there is what could be called ‘the switch”.

This is a variation on the old theme of passing out public money to buy votes. Here is how it works: Take money from the public through taxation. Take money from the public secretly through currency debasement. Then hand money back to the public to help them deal with the excessive price inflation the money printing caused.

It is almost a perfect circle. Give the money back to the public that you took from them, to acculturate the public to taking government money and make them politically dependent on politicians.

A good example has actually been proposed. Drive up the cost of fuel by harassing and regulating oil producers, forcing the Green agenda, and printing excessive money. Then ride to the rescue by sending the public a check so they can deal with the high fuel costs. Since the government is running huge deficits anyway, simply print the money you will pass out to the public. The belief is the public will be too stupid to understand the game.

A variation of this scheme was the stimulus checks. Shut the economy down using Covid restrictions, causing great pain. Relieve some of that pain by sending checks to those harmed, hopefully, to make them grateful and dependent.

Thus, the way not to fight inflation is to harass and harangue businesses and housewives, print excessive money to pass out to the public to help with inflation, impose wage and price controls, blame corporations, and impose “windfall” profit taxes.

As to what to do to really fight inflation, the following steps are necessary. If inflation is too much money chasing too few goods, one needs to decrease the amount of money and increase the supply of goods.

Slow dramatically the growth of government spending and the growth of the money supply.

Increase the supply of goods by deregulating and rewarding production. Avoid at all cost wage and price controls, rationing, and windfall profit taxes. Foster vigorous competition, knocking down legal and regulatory barriers that block new producers from entering the market.

In short, do the opposite of what Democrats propose.

If the program is both credible and consistent, consumer hoarding will stop as the public learns there is no rational reason for doing it. When supplies of goods and services are reliable, and if prices moderate, there is no reason to buy before prices climb even further. It takes time to break the back of inflationary psychology. However, if the underlying cause, too much money and too few goods is addressed, the inflation will subside.


Governments Giveth and Taketh Away

Estimated Reading Time: 4 minutes

The jobs report this morning seemed like good news (3.6% unemployment) until you look at the details: “The U.S. labor force shrank by 363,000 people in April from a month earlier, the Labor Department said Friday. The labor force participation rate, or the share of American adults working or looking for a job, ticked down to 62.2% in April from 62.4% in March.”

The devastation of the lockdowns is still with us: a demoralized workforce, women with kids slow to come back due to a childcare shortage, men having scaled back their professional ambitions to live off savings and accumulate debt, plus a general disruption of the liturgy of life that has not fixed itself. 

As for this week’s GDP numbers, we all surely know that the “GDP” means almost nothing, except that it means everything. More specifically, it is a purely technical measure, easily distorted by crazy inclusions and exclusions. On the other hand, the data reporting alone has a huge psychological effect on markets and investor sentiment. One more quarter and the recession will be officially declared.

Two things about that. 1) If we get a second quarter in negative numbers, absolutely everyone in mainstream financial media will be united in messaging that this is purely a technical and very mild recession if it is a recession at all. They will be out in full force to dial back the worry and panic. 2) It is more correct to say that we are actually entering into the third year of an authentic recession. We just don’t see it in official data, due to wild government spending and money printing.

There are, however, some pieces of data that government cannot hide. Let’s look at the latest punch in the chops: real disposable personal income. This is the stuff that people actually care about, unlike GDP. because it directly affects their lives. Here we see the biggest shell game in the modern history of government fiscal and monetary policy. 

It shows that: we were rich! And then suddenly we were not. They gave us lots of money! Then they took it all away by taking away a huge slice of the purchasing power of that money. If there is a case for mass outrage, this is it. Sadly, most people cannot figure this out. It is opaque and the lines of cause and effect are too complicated for the TikTok generation.

We know what happened now, thanks to reporting from March. This is a beautiful yet terrifying picture of trickery and robbery. 

Now let’s flow the data a bit differently, looking at percentage change year over year. You can see here how suddenly all of this caught up with everyone. The valley mirrors the peak almost exactly.

And guess what? Inflation is still rocking in real-time, right now running 11% according to the data tracker at Truflation (which I’ve come to trust). That’s a very slight pullback from a month ago but nothing to celebrate. And there’s every indication that this problem will get worse over the summer. So you can take a ruler and plop it on the downturn in the above chart and draw a line.

Here is a perfect picture of why so many among the not-ridiculously-rich are now seething in anger. They sense prosperity draining away. They are spending and adding debt like there’s no tomorrow. And that’s because there are widespread expectations that tomorrow is going to be much worse. 

Consumer confidence is right now lower than it was during the depth of lockdowns. And this is because the policy has done nothing to repair the grotesque damage and much to make it worse.

And Yet the Flowers Bloom

Spring has bloomed all over the country and people are out and about rediscovering the meaning and beauty of life. It’s a happy time that masks deep hurt and depression. In the South and most of the West, apart from crazy California, there are no masks to be seen.

In the Northeast, there are still some sad sacks out and about wearing masks, perhaps 5-10% of the population that is still very confused. They got vaccinated and boosted and maybe boosted again and still got Covid. They mask up because they don’t want to get it again, completely oblivious to the reality that natural infection is protective, while the mask is not. 

The truth is that public health messaging for two years has been nothing but obfuscation and duplicity. As a result, we lost many souls and people lost their minds too.

Still, it’s great that the pandemic is officially declared to be over. But we might ask why. It’s true that seroprevalence studies show 60% of the population has contracted and overcome covid. Another way to say that: the kabuki dance of two years achieved nothing except perhaps to delay the inevitable.

The real reason for the declaration of the pandemic’s end is partly political. The DNC has discovered through its polling that it faces an absolutely political calamity in November. The party is flying into action, doing its best to dramatically change the public mood.

The CDC went along and changed the color-coding on its inflection map and is ever more saying that infections don’t matter, only deaths. We are now in another seasonal downturn, so it works out.

This leaves open the possibility of a complete repeat of the hysteria starting after November, depending on the outcome of the midterms. The ruling class has now full confidence that it can turn on panic and turn it off in a matter of weeks, with just the right messaging. Will anyone believe them next time? Maybe… 

Meanwhile, spring has sprung, the flowers look sweet, and people are glad for a return to normalcy, no matter how degraded it is relative to three years ago. If governments would leave the markets alone, recovery could be real. But there is almost no chance of that, regardless of who takes control of the machinery of the state starting in November.

There are so many lessons to learn from this remarkable episode in history, among which is that when the government seems to be giving you something for free – stuffing your bank account full of money you did nothing to get – it is likely buying some time to make you pay dearly for it later.


This article was published by the Brownstone Institute and is reproduced with permission.

Real Personal Income Down 20% from One Year Ago

Estimated Reading Time: 8 minutes

Editors’ Note: Some readers may find it offensive to see the criticism of Donald Trump. We think Trump did many good things and we admire his courage. However, he and the Republican leadership did abandon one of the key elements of conservative Republicanism, fiscal prudence. Yes, he was bullied by the medical establishment, but the lockdown was both a catastrophic health and economic mistake, and The Prickly Pear said so at the time. Sending out direct stimulus checks to the public with money printed out of thin air was a terrible precedent and simply makes citizens even more comfortable becoming wards of the state and completely disrupted labor markets. And even before that, Republicans had long before abandoned their charge of being fiscally prudent and a champion of sound money. The last time we had a balanced budget was under Clinton when Gingrich was Speaker of the House. Under Republican leaders, we talked a good game but never delivered. Under Bush, the nation continued to sink slowly into the quicksand of fiscal excess, but we do keep sinking. To be sure, Obama and Biden have made things much worse, but if we are ever to reverse the trajectory towards national bankruptcy, Republicans need to stand up for financial rectitude by the government.  Hopefully, the midterm elections will bring to Washington new U.S. Representatives and Senators willing to curtail debt financing, rampant money printing, and excessive federal spending.


Well, here’s another shocker. This Commerce Department report showed that real disposable personal income in March came in at -19.9% versus March 2021.

That staggering shrinkage, of course, is still another testimony to the old saw about “what goes around, comes around.” That is, last March real disposable incomes soared by nearly 29% owing to the massive Biden stimulus payments. But since then inflation has blasted skyward, even as Washington has run out of nerve on the fiscal stimulus front.

Y/Y Change In Real Disposable Income,February 2020 to March 2022

What this reminds us, of course, is that we are not in an ordinary business cycle. Washington simply went berserk on the fiscal and monetary front in response to the economic dislocations caused by Trump’s foolish backing of Covid lockdowns. These massive stimmy eruptions, in turn, have created unprecedented turmoil and fluctuations in the quarterly flows of income and spending.

And, yes, the Donald owns the Lockdown madness of 2020, which caused GDP to plunge at a 37% annual rate during the April-June quarter of that year. After all, no one said he had to listen to the likes of statist bureaucrats such as Dr. Fauci and the Scarf Lady, but he was simply too uninformed, lazy, and timid to send them packing.

In any event, there has never in American history been an explosion of transfer payment-free stuff like what occurred on the Donald’s watch during 2020 and Q1 2021. And, yes, you can saddle him with a good share of the blame even for Biden’s $1.9 billion spending palooza in March 2021. That’s because it was centered on completing the second $2,000 per person stimmy check that the Donald had loudly brayed for during the 2020 election campaign.

As shown below, the annualized run rate of total government transfer payments (including the state and local portion of welfare and Medicaid) had been about $3 trillion, but after February 2020 it soared into a wholly different zip code. Thus, compared to the $3.15 trillion rate of February 2020, the huge surges of transfer payments occurred as follows:

  • April 2020: $6.49 trillion, up 106%;
  • January 2021: $5.65 trillion, up 79%;
  • March 2021: $8.05 trillion, up 155%.

Alas, even Washington’s outbreaks of fiscal madness eventually come to an end. Consequently, the run rate of transfer payments reported this morning for March 2022 was just $3.86 trillion, a figure -$4.19 trillion and 52% below that of March 2021.

Needless to say, neither the American economy nor economists’ models are built to handle fluctuations of such gigantic magnitudes. Accordingly, the American economy is now flying blind into a direction that includes soaring inflation and an abrupt reversal of the massive monetary and fiscal stimulus that drastically distorted economic activity during the past two years.

Total Government Transfer Payments At Annualized Rates, January 2019 to March 2022

For the moment, the collapse of stimmies and transfer payments has not appreciably slowed down the every-ready spending bunny of the household sector. During March, spending rose by 1.1% from February and was up by 9.1% from prior year.

But that only happened because households took their savings rates back to 6.2% of disposable income—the lowest level since December 2013, and barely half of the 10%-12% rates that prevailed prior to the turn of the century.

Stated differently, the temporary bulge in the calculated savings rate which occurred during April 2020 to March 2021 was a pure artifact of Washington’s fiscal madness: Free stuff was being shoved into household bank accounts faster than even America’s spendthrift families could dispose of it.

But for all practical purposes that is now ancient history. The household sector is already back to its paycheck-to-paycheck modus operandi, meaning that when the next round of layoffs hit the scene, it will pass directly through to reduced consumption spending.

Personal Savings Rate, December 2013 to March 2022

For want of doubt, it is illuminating to look at the absolute level of personal savings (at annualized rates) and the incredible fluctuations that have roiled the data owing to the stimmies. These data make clear that the allegedly “strong” current levels of household spending are being fueled on a one-time basis by the take-down of savings.

To wit, the run rate of personal savings was about $1.19 trillion per annum in December 2019, reflecting the modest 7-8% savings rate which prevailed during the post 2008-2009 recovery. But that figure soared to $6.39 trillion and $5.76 trillion during April 2020 and March 2021, respectively, when Congress blasted the household sector with free stuff from the end of a fiscal fire-hose.

The obvious message of the chart, however, is that this aberration is now over and done. During March 2022, in fact, the savings level plummeted to $1.15 trillion (annualized). That was actually below its pre-Covid trend rate, and a staggering -$4.61 trillion or 80% below its level of March 2021.

In a word, household spending and GDP numbers have been immensely flattered in recent months by an unprecedented drawdown of the bloated savings levels which were generated by the stimulus checks. But that particular trick can be accomplished only once, and the descending yellow bars in the chart below make clear that it is playing out with a vengeance.

Personal Savings Level, 2019-2022

In fact, the exhaustion of the savings drawdown combined with surging inflation is already showing up in the true measure of household spending—-real PCE (personal consumption expenditures).

Notwithstanding the 9.1% rate of Y/Y nominal PCE gain (purple line) reported this morning for March, the Y/Y gain in real terms (black line) was just 2.3%. That compares to 7.3%, 9.3% and 25.4% in November, June, and April of 2021, respectively.

In short, with the savings drawdown dwindling and inflation racing well above wage and salary gains, real PCE is being powerfully pulled toward the flat-line. That’s because what amounted to the equivalent of a watermelon passing through a Boa Constrictor has now basically exited the beast.

Y/Y Change In Nominal and Real PCE, March 2021 to March 2022

Indeed, today’s report even put the kibosh on the claim that robust growth of wages and salaries will keep the household sector fueled with fulsome spending power. As it happened, in fact, March’s 11.7% Y/Y gain in aggregate wage and salary incomes ballyhooed on bubblevision this AM was not exactly what it was cracked up to be.

That’s because when you strip away the inflation, the Y/Y figure shrinks to a pretty pedestrian 3.1%. Also, when you look at the trend since last April, when the nominal and inflation-adjusted figures rose by 15.3% and 11.2%, respectively, there is really not much to argue about.

To wit, while the Y/Y growth rate of nominal wages and salaries is down a modest 24%, the growth rate of real wage and salary income has plummeted by 72%. Yet it is fairly certain that aggregate employment and wage growth will continue to slow, even as inflation accelerates—meaning that the growth rate of inflation-adjusted household incomes will continue to shrink.

Y/Y Change In Nominal And Inflation-Adjusted Wage And Salary Income Disbursements, April 2021 to March 2022

Finally, the March figure for the Fed’s favorite inflation measuring stick—the PCE deflator—had two clear implications: First, that the inflation rate is accelerating, and second, that the Fed will be in no position to ease up on its anti-inflation stance at any time soon.

The chart below shows that the Fed is hopelessly behind the inflation curve and that its long-held “lowflation” theory was a complete crock, supported by a temporary but aberrant low in the inflation rate for durable and nondurable goods.

Accordingly, the two data banks below summarize the Y/Y inflation rates for the three major components of the PCE deflator, as well as the overall index. The difference between the two periods is night and day, and as depicted by the chart it is getting worse.

Y/Y Deflator Change As Of Q4 2019:

  • PCE Services: +2.2%;
  • PCE Durables: -1.5%:
  • PCE Nondurables: +0.4%;
  • Total PCE Deflator: +1.5%;

Y/Y Deflator Change As Of Q1 2022:

  • PCE Services: +4.6%;
  • PCE Durables:+10.9%;
  • PCE Nondurables:+8.8%;
  • Total PCE Deflator:+6.3%

Given the fact that services inflation, which has always been well above the Fed’s target, has now doubled from 2.2% to 4.5% and that the forces driving both durables (global supply chain disruptions) and nondurables (global commodity surges) are continuing to intensify, the bottom line index figure of 6.3% posted for March has nowhere to go except up, and substantially so.

Thus, the question remains. Under an impending scenario in which the PCE deflator is rising toward 10% is it conceivable that the Fed can ease up on monetary restraint—especially during an election season in which the GOP will be in full-throated anti-inflation war cries?

Y/Y Change In PCE Deflator And Its Major Components, Q4 2019-Q1 2022

We think the answer to the above question is negative, and that means the impending hit to the insanely over-valued stock market will be biblical.

That’s because interest rates are going to rise far above current expectations before the Fed finally succeeds in staunching the inflationary tide and sending the economy into the drink; and also because the superficial  “growth” canards that have justified out of this world PEs in the tech sector, and especially among the FANGMAN, are already starting to unravel.

All along our argument has been that the likes of Amazon, Google, and the rest will soon be coming up against the iron law of GDP growth. That is, their high growth rates of the last decade are not sustainable because they were due to one-time economic shifts, such as the movement of advertising dollars from legacy to digital media and the shift of retail distribution from bricks and mortar stores to eCommerce.

Moreover, the huge economic disruption caused by the Covid Lockdowns actually accelerated these shifts, bringing the day of completion, and therefore GDP-based growth, significantly forward in time.

This week’s Q1 earnings reports among the tech giants have validated those themes in spades. For instance, Amazon’s revenues increased just 7% during the first quarter, compared with 44% expansion in the year-ago period. This marks the slowest rate for any quarter since the dot-com bust in 2001 and the second straight period of single-digit growth for the eCommerce giant.

Moreover, Amazon said it projects revenue during the current quarter of $116 billion to $121 billion, missing the $125.5 billion average analyst estimates. This means that the second-quarter revenue growth could dip even further, to between 3% and 7% from a year earlier.

To be sure, Amazon still has the largest share of online commerce, about 39%, according to Insider Intelligence. But the business intelligence firm also says that growth in the segment has flat-lined recently and predicts that annual growth in Prime subscriptions in the U.S., once nearly 20%, will slow to 2% by 2025.

As it was, Amazon actually posted a net loss of $3.8 billion during the first quarter, and, more importantly, negative free cash flow of $18.6 billion. So it is only a matter of time before its remaining $1.242 trillion of market cap (after today’s bloodbath) tumbles back to earth.

Nor is Amazon alone. A broad swath of companies across industries is experiencing an online-shopping slump. In March, online spending in the U.S. was down 3.3% from a year earlier, the first such decline since 2013, according to MasterCard SpendingPulse.

Likewise, Google’s ad revenues slowed sharply from 34% last March to just 22% for the LTM period ending in March 2022, while Facebook’s ad revenue slowed to just 6.1%. That was weakest expansion in the company’s 10-year history.

Again, the digital giants have already absorbed upwards of two-thirds of ad revenue, meaning that sometime not too far down the road, revenue growth will bend to the 2% +/- level of the overall advertising industry. At that point, the $2.1 trillion of combined Facebook and Google market cap is not likely to withstand low single digit revenue and earnings growth.

So, yes, today’s report told the bubblevision crowd that consumer spending in March came in at 9.1% over prior year and that therefore all was well.

It wasn’t. Not by a country mile.


This article was published by the Brownstone Institute and is reproduced with permission.

Endgame For the Fed: Is Checkmate Coming?

Estimated Reading Time: 6 minutes

For more than 40 years, the Federal Reserve has fostered, encouraged, and otherwise helped to create the most reckless credit expansion in the nation’s history. Total credit market debt of all varieties — federal, state, local, household, financial and nonfinancial – has ballooned from 330 percent of gross domestic product in 1960 to over 900 percent of gross domestic product in 2021. Adjusting for the size of the economy and for inflation, we now have three times as much credit and debt as we had in 1960.

In many ways, credit can be a wonderful thing. It can enable a worker of meager financial means to acquire a motor vehicle that will allow him to take a job otherwise inaccessible to him via public transportation. It can enable a young married couple to buy a house and to build equity in that house over the 30-year term of the mortgage or deed of trust. Credit can enable an entrepreneur to buy a business and to do a better job of running the business than the previous owner was able to do.

The expansion of credit on a nationwide scale is expansionary in economic terms because virtually no one borrows money to put it under a mattress. People borrow money to spend it, whether on goods and services or on investment assets. The spending of borrowed money on goods and services buoys the real economy, creating demand for a product that would not otherwise exist. It also buoys investments, such as stocks, bonds, and real estate. For example, real estate rises in price because of the availability and price of credit. If you doubt this, ask yourself this question: if it were totally impossible to borrow money to buy a house if you could buy a house only by paying the full purchase price in cash, how much would houses sell for? The answer is obvious, isn’t it? They would sell for far, far less than they sell for today.

Although taking on more debt puts money into a borrower’s pocket, debt service — paying interest and principal — takes money out of that borrower’s pocket. That means less money the borrower has to buy goods and services or invest. Overall economic effects on the nation, though, are determined not on an individual borrower basis but on the basis of all the borrowers and lenders — on a nationwide basis, in other words. As long as credit and debt are expanding on a nationwide basis, expansionary economic policies remain in effect. The economy remains robust, unemployment rates remain low, and for the stock and bond markets it’s “party on, Garth.”

But what happens if, for whatever reason, credit and debt (the mirror side of credit) begin to decline on a nationwide basis? Should that occur, the amount of money flowing into goods and services into the purchase of goods and services would decline, as would the amount of money flowing into investment assets. In economic terms, this is contractionary. Because the amount of credit and debt outstanding is in the trillions, if the magnitude of the contraction in total credit outstanding were sufficiently severe, the resulting economic contraction could quickly turn into an economic depression far exceeding anything this country or any other country has ever experienced. Society would unravel.

The Fed has striven mightily to prevent this from ever occurring. The Fed’s response to economic developments in 1987, 200-2002 and 2007-2009 has been the same: “flood the market with liquidity.” Do whatever needs to be done to keep total credit from contracting, because that will spell disaster. If credit does indeed contract in large amounts, the Fed will be exposed as having run the greatest Ponzi Game in history. The truly massive amount of debt it has created — measured not in the billions but in the tens of trillions — will be the fuel for a giant crash. As Warren Buffet famously said, it’s not until the tide goes out that you learn who has been swimming naked. It’s no accident that Ponzi games such as Enron and Madoff Securities are not exposed until the stock market crashes.

The Fed’s tools to prevent a devastating credit contraction and crash — flooding the market with liquidity — don’t work to curb rising inflation. Flooding the market with liquidity would only make inflation worse. The Fed’s tool to combat inflation is to raise interest rates — to raise debt service requirements. That is where the Fed is now. Consumer price inflation is bubbling along at an 8.5 percent rate (the highest in 40 years). Producer prices are galloping at an even higher rate: more than 11 percent. When inflation was 7.6 percent in 1978, the Fed pushed the federal funds rate to 8.5 percent. And now, with inflation higher than it was in 1978, where is the federal funds rate? At 9 percent? No. At 8 percent? No. At 7 percent? No. It is at 0.33 percent!

The Fed is hugely behind the curve. The most recent rise was a paltry one-quarter of one percent. The Fed is clearly terrified at the prospect of raising interest rates, otherwise, the rate increase would have been at least one full percentage point or more. The Fed is demonstrating by its actions that it is not serious about fighting inflation. It is gambling that inflation will subside of its own accord, with little help from the Fed.

If over the next six months to one year, inflation does indeed subside, with the federal funds rate rising to perhaps 1 percent or 1.5 percent, the Fed will be shown to have made the correct decision. But no one has a crystal ball in that regard.  If the inflation rate keeps advancing, and we have double-digit consumer price inflation six months or one year from now, the Fed’s hand will be forced. Serious interest rate increases will be required. In that scenario, the probability that the Fed will err, either on the upside (raising interest rates too high and creating a market panic and resulting crash) or on the downside (runaway, Weimar-style inflation as a result of tepid interest rate boosting) hugely increases.

The historical precedents here are strongly against the Fed. The market can panic more quickly than the Fed can counter the decline by lowering interest rates and engaging in “quantitative easing.” Note that 2000-2002 was a more serious downturn than 1987 and that 2007-2009 was more serious than 2000-2002. The trend is clear. The next downturn likely will be far worse than 2007-2009 if the Fed errs in the direction of raising interest rates too far or too fast. The reason for this is that declines are generally roughly proportional to the amount of total credit market debt outstanding.

To date, the equities markets have come back after each drubbing, but if a decline goes far enough, that pattern may not necessarily repeat. Instead, we may end up in a Japanese/Nikkei scenario where equity prices in 2050 or 2060 are lower than they are today. Note that the Nikkei is lower now in 2022 than it was 33 years earlier in 1989. In Great Britain, following the disastrous South Sea Bubble, equities went into a more than 50-year bear market.

The historical precedents are not any better if the Fed errs on the downside and allows inflation to really get out of control. Inflation has a way of accelerating, as the Weimar experience shows. (The source of the data that follows is “The Great Disorder” by Professor Gerald D. Feldman, a 900-plus page tome that will tell you more about Weimar Germany than you ever wanted to know). In August 1914, the dollar exchange rate of the paper mark in Berlin was 4.21— one U.S. dollar would buy 4.21 marks. At the time of the Armistice in November 1918, it was 7.43. Things became steadily worse after that. By January 1922, one U.S. dollar would buy 191.81 paper marks. Relatively speaking, though, that had been a walk in the park compared to the complete and utter disaster —- resulting in the total destruction of the mark, and I do mean total —that unfolded beginning in August 1922 and finishing up a mere 16 months later in December 1923.

In August 1922, one dollar bought 1,134.56 paper marks. By June 1923, one dollar was buying 109,966 marks. Was that the end of it? No, things got worse, much, much worse. Two months later, in August 1923, one dollar would buy 4.6 million marks. One month after that, in September 1923, a dollar would get you almost 99 million marks. In October 1923, the exchange rate was 25 billion paper marks for one U.S. dollar. By December 1923, one dollar would get you 4.2 trillion marks.

One conclusion that may be drawn is that it took only about five years for inflation to destroy the mark. Another is that when things really get out of control, as they did for Germany beginning in August 1922, the end is nigh, as little as 16 months away.

In conclusion, the Fed is now sailing between Scylla and Charybdis, between the monster of a stock market crash and resulting depression on one hand and the whirlpool of runaway inflation on the other. Despite an 8.5 percent inflation rate, the U.S. dollar has remained strong. Across the Pacific in Tojo-land (Japan), the Japanese yen has been rapidly depreciating. Japan is even farther along the economic-profligacy scale than the U.S. is. The ratio of debt to GDP is far higher. The Japanese economy has been aptly described as “a bug in search of a windshield.” Keep an eye on Japan: it may provide an important clue of what finally happens when monstrous credit and debt expansion over decades (especially sovereign debt) goes off the high board.

The Urge To Spend

Estimated Reading Time: 3 minutes

Loma Verde, California is building a $24 million recreation center with a pool . Forest Lakes , Minnesota is getting a $1.5 million golf clubhouse, while San Antonio is purchasing a $15 million theme park.

These may seem frivolous when rampant inflation is threatening, but never mind, they’re all “free“, a synonym for “paid for by the feds“.

America is awash in cash. Hundreds of other communities are enjoying similar goodies. States in no fiscal difficulty whatsoever have been given billions in budget boosts. 

Checks for thousands of dollars have gone to citizens not even claiming to be in need.  Millions of Americans receive enough government cash that they can now avoid the inconvenience and degradation of work.

These are outcomes from President Biden’s $1.9 trillion dollar American Rescue Plan, although the link to Covid may seem obscure to some. But the bigger point is that our governing culture today sees government spending as a positive good, which may be prompted by any excuse or none at all.

This is a continuation of the age-old argument over the role of government. For those who see government as a benign force that can efficiently, by use of its taxing power, address the common welfare and assure equitable outcomes, every dollar transferred from private to public hands is a positive.

Moreover , Big Government clearly increases the power and prestige of government officials. It creates beneficiaries highly likely to vote for those politicians who “cared“ enough to send Other Peoples’ Money their way.

Vastly expanded government has also affected the attitudes of Americans toward the role of government in their lives. To an extent unthinkable to earlier generations, Americans now assume the federal government will take responsibility for such matters as healthcare, education, childcare and aging parents.

The founders of our Constitution would not be pleased. Their original intent was to create a more just and independent society than the autocracies which had plagued mankind for millennia. Regrettably, Americans have blandly looked on while much of their birthright has been stolen. 

Much of the recent confiscation of our nation‘s economic output has come under the pretext of Covid spending. But remember that the Covid financial crisis was a self-inflicted wound. The lockdowns were unprecedented and proved ineffective as a pandemic response strategy, but they precipitated a huge expansion of government power.

America has so far spent $6.4 trillion in Covid relief bills. The $1.9 trillion in the 2021 American rescue plan alone was enough to buy every Covid vaccine, ventilator and hospital in existence. But much of the money went to beyond-obvious pork and to support Democratic political constituencies.

New York, among others, is reportedly sitting on $12.7 billion in unneeded Covid funds that they hope will revert to “unassigned“ dollars. The money was pushed out so carelessly that the Labor Department IG estimates $163 billion of the $872 billion in Covid unemployment funds were dissipated in fraud.

The consequences of all this unnecessary spending are predictable and enormous. In 2009, then-President Obama warned against continuing deficits when the debt had doubled from $5 trillion to  $10 trillion under his predecessor.

It was $20 trillion by the time he left office, stands at $30 trillion today and will reach $45 trillion by 2032 according to Biden’s own budget projections.

But trifles like stifling debt and lack of need can’t suppress the political urge to spend. With Covid receding and no extraordinary expenses pending, Joe Biden’s new budget proposal rings in at $5.8 trillion, fully 31% higher than in 2019.

Federal revenues rose 18% in 2021, then 26% this year but it’s not enough. Biden‘s $2 trillion projected deficit means the debt will have climbed $7 trillion in just the last three years. Multi- trillion dollar deficits have effectively been normalized.

It could be worse. We narrowly escaped passage of the $3.5 trillion Build Back Better boondoggle. Yet now Biden has the gall to demand $30 billion more for Covid expenses when at least $500 billion from the last Covid relief bill is still unspent.

The mindless, immoral imperative to spend more knows no bounds. Time is running out to reverse course. When will we come to our senses?


Thomas C. Patterson, MD is a retired Emergency Medicine physician, Arizona state Senator and Arizona Senate Majority Leader in the ’90s. He is a former Chairman, Goldwater Institute.



‘Inflation Tax’ Will Cost Families This Many Thousands This Year, Bloomberg Analysis Warns

Estimated Reading Time: 2 minutes

There goes $433 a month from your family’s budget…


Another day, another alarming inflation metric. We just got the numbers for the Personal Consumption Expenditures index (PCE), the Federal Reserve’s favored inflation metric, and they’re jaw-dropping. The PCE hit a 40-year high in February, with the measured prices rising 6.4% year-over-year.

What does this mean in real life?

A new Bloomberg analysis sheds some light on this key question. It finds that this year, inflation will cost the typical US household an additional $5,200 just to afford the same goods as last year. That’s $433 a month taken out of the average family’s budget.

Why is this happening?

Inflation is a Policy Choice

In the mainstream media and among progressive economists, price inflation is often portrayed as an abstract force beyond our control, like the weather. But in reality, it is directly caused by reckless government policies.

The Federal Reserve decided to “stimulate” the economy amid the pandemic by (digitally) printing trillions of new dollars out of thin air. But scarcity and trade-offs are the defining reality of economic life, so their actions had consequences. By putting trillions of new dollars out into the economy, they made the dollars Americans currently held less valuable—inflating away our savings and wealth.

Just consider the below graph, which shows the number of US dollars in circulation over the last 5 years:


What’s more, the federal government flooded the economy with “stimulus” money.

It ran up massive, multi-trillion-dollar budget deficits—at the very time, various levels of government were restricting economic life and constraining supply. Through trillions in debt, Congress signed us up for grave economic costs in the future in order to artificially inflate consumer demand in the short term, which doesn’t work as a “stimulus” to begin with.

Yet when you do this at the very same time you are constraining the economy and hindering the supply chain, it’s inevitable that price levels overall will surge as demand so far outpaces supply.

So, no, inflation isn’t an abstract phenomenon. But it is, essentially, an indirect tax on everyday Americans.

Inflation is a ‘Stealth Tax’

What is a tax, after all, other than a cost forcibly imposed on the citizenry to finance/enable government expenditures? And that also perfectly describes the inflation currently hitting Americans in the wallet.

The government wanted to engage in reckless money-printing and spending without bearing the political brunt of directly raising peoples’ taxes. As a result, our savings were inflated away.

That’s the textbook definition of a “stealth tax.”

Even John Maynard Keynes, hardly a free-market economist, famously acknowledged this reality.

“By a continuing process of inflation, government can confiscate, secretly and unobserved, an important part of the wealth of their citizens,” Keynes once said.

Keynes found agreement on this point from across the spectrum. Nobel-Prize-winning free-market economist Milton Friedman similarly quipped that “inflation is taxation without legislation.”

Ultimately, Americans shouldn’t fall for this financial sleight-of-hand.

“Inflation” isn’t really what will cost families $5,200 extra this year. The government is what’s truly imposing that burden upon us all. 


This article was published by FEE, The Foundation for Economic Education and is reproduced with permission.