The US govt’s most recent inflation report shows consumer prices rising past 12 months at 7% rate, up from prior report that showed 6.8%. (Really both over 10% for reasons I’ve stated before). The worst since 1981. Biden admin. spokespersons say it’s ‘slowing’. Yet prices rising first week of January twice as fast as last week of December; and 7% is more than 6.8%. Inflation will cut into 1st Quarter 2022 real US GDP, dampening consumer spending. Also, the end of child care benefit will have same effect on real consumption. Then there’s the general fall of disposable income for millions of US households due to failed Build Back Better plan, which is now not only dead but buried. Continuing problems of production and exports from China/Asia will further add to US real economic slowdown this quarter. Ditto as Omicron slows business investment and adds to workers shortages; and as Fed raises interest rates as well. Focus will be on Fed raising rates as means to slow inflation. However, Fed rate hikes depress demand which is not the problem behind inflation. That problem is in part supply side issues (US and global trade) and even more so problems of US monopoly corps price gouging. Fed rate hikes can’t effect either supply or monopoly causes. It can make households pay for inflation by rate hikes that result in layoffs in housing, autos, other big ticket purchases–just as the Fed did in 1981-82 when it raised rates to 18%. It provoked recession as solution to dampen inflation–when the real cause was OPEC and Saudi supply side cause. Will the Fed repeat 1981 in 2022? If it tries it will fail. US economy is far more fragile today. Should Fed raise rates beyond 3% (10 yr. US bond rate now at 1.5%), it will provoke major real economic contraction–i.e. double dip recession in 2022. So it won’t and will back off, I predict.
In summary, more chronic inflation coming 2022. More slowing US real economy this quarter. And growing fragility in global/US financial markets as China property developers default pressures spread, contagion potential rises, US dollar rises and emerging market economies’ currencies deflate (and their economies slow). The fiscal stimulus phase of Great Recession 2.0 is now over. There’ll be no further fiscal stimulus for households, as Fed monetary policy turns contractionary as well with rate hikes.
Longer run conclusion: whereas Great Recession 1.0 (2007-10) was precipitated by financial markets crash that pulled down the real economy in its wake, today’s Great Recession 2.0 (2020-22) may experience a similar cause-effect but in reverse: real contraction 2020-22 followed by financial markets’ contraction (late 2022-2023).
Read my commentary of the past week below on twitter noting the key developments for prices in wake of government’s latest inflation report:
#Fed rate hike in March all but certain, as all Fed governors now lined up for it. Before rates drift up. Auto prices (new & used), houses, etc. to rise more next 2 months. Ditto as exports from China slow & US monopoly corps continue price gouging. Result: inflation continuing
#Inflation Republicans say its excess Demand from too generous stimulus. But stimulus ended in Aug-Sept. Inflation surged after. Dems say its supply. But oil, meat, grain, etc. corps have no supply problem. So what is it? It’s monopoly corps price gouging to recover 2020 profits
#Inflation there’s no shortage of domestic US oil supply. Yet US oil corps raised prices 29.6%! So not even supply supply driving oil, gas, energy inflation. So what is? Price gouging by oil corps (and other monopolies like meat producers, cereal-bread corps, etc. etc.)
#Inflation report today = 7% Dec CPI rise, so it’s accelerating from Nov 6.8%. Big driver is oil/gas up 29.6% over year. So oil corps = biggest cause of supply side inflation today, just as in 1981 when OPEC oil supply shock caused inflation. Monopolies price gouging = main cause
#Fed raising Fed interest rates will actually exacerbate & worsen supply side driven inflation. It will mean less business investment, more worker layoffs and lost wage income to spend & more labor supply shortages–all of which will add to supply side inflation in coming months
#Fed using interest rate hikes to slow inflation is like using a sledgehammer to swat flies. Powell knows rate hikes won’t check supply driven inflation. It won’t take 18% Fed rate to provoke another recession in 2022. US economy more fragile. A 3% 10 Yr. Treasury rate will do it
#Inflation Biden & media saying inflation is abating. Another lie. Govt own data show inflation rising first week of January twice as fast as during last week of December. There’s so much lying going on, from both wings of capitalist party–radical right/Republicans & Biden/media
#Inflation In 1981 inflation 10% due to supply side issues with global oil imports, caused by OPEC & Saudis. US response: get Fed to raise rates to 18%. Autos, housing, crashed. Investment & wages fell. Recession. Demand was used to address Supply cause. Fed planning same 2022.
#Inflation CPI up 7% again December-most since 1981. Inflation not slowing. So what’s Biden proposing? More competition for monopolies like meat producers. When asked by nat’l media today what’s being done about supply driven inflation, Biden’s Director of CEA ducks the question
#Fed As inflation accelerated in 2021 Fed refused to raise rates. Now as wages try to catch up to prices, Fed says will soon raise rates =Fed trying to protect profit margins of corps & businesses, not really to stop inflation which is supply driven & rate hikes can’t slow
#Wages Govt & Media hyping 4.7% wage gains past 12 mos. Say compares to 3% pre-covid. But inflation pre-covid 2%-2.5%. Inflation now almost 7%. So now Real Wages less than pre-pandemic.(Also 4.7% is ‘average’, so higher paid managers, tech, professionals getting > & others <4.7%)
#Fed signals will raise rates maybe as early as March, not next fall. Rate hikes to address supply side inflation work instead by depressing demand, jobs, wages, consumer spending–i.e. make workers pay for what is corp. driven supply inflation. Fed made same error in 1980-81
#Inflation Biden’s says today: “We must get to the bottom of why farmers and ranchers continue to receive low payments while families across America endure rising meat prices”. ‘Get to the bottom’? Really? Biden means let’s study & bury it. It’s obvious food corps price gouging.
#Inflation Biden’s answer to monopoly price gouging by food industry: govt give more $ to smaller capitalists to create more competition. Translated: Inflation is just an excuse for govt to provide more subsidies to corporations. Real solution: price controls + tax big food corps
#Inflation meat & food prices up 20% so far. Biden says due to lack of competition: “Capitalism without competition isn’t capitalism. It’s exploitation” (wall st. journal 1-4-22). Since all food industry is near-monopoly, it’s all capitalist exploitation.
Dr. Jack Rasmus @drjackrasmus
Jack Rasmus 
“there’s no shortage of domestic US oil supply. Yet US oil corps raised prices 29.6%! ”
“So what is? Price gouging by oil corps (and other monopolies like meat producers, cereal-bread corps, etc. etc.)”
I like to point out the state of oil production in North Dakota has an example of larger market trends.
By viewing the Current Active Drilling Rig List for North Dakota one can see that the number of active rigs fell from 67 on 1/14/2019 to just 11 on 1/14/2021.
It has bounced back a bit to 23 today (1/14/2022).
In 2019 Steve Schlotterbeck, former chief executive of EQT stated:
“While hundreds of billions of dollars of benefits have accrued to hundreds of millions of people, the amount of shareholder value destruction registers in the hundreds of billions of dollars,” he said. “The industry is self-destructive.”
Market competition.
Prior to the “pandemic” there was much more competition, in most every industry.
Leading to lower prices, but also lower business revenue.
In fact, revenue in many industries has remained largely stagnant.
EPS in many indices remained stubbornly low.
And problem was, corporations were accumulating massive debt, spurred by record-low interest rates.
And used largely for corporate stock buy-backs, a manipulation to increase EPS, and increase shareholder equity and stock price.
But the “pandemic” drove commerce down, driving many smaller producers out of business.
Further concentrating an already highly-concentrated business environment. But affecting mainly the smallest companies.
Those creating the most disruptions to stagnant corporate revenue & profits.
So now, post-“pandemic”, we have much fewer businesses, but much larger corporations.
And those fewer, but larger corporations are now all largely owned by the same CARTEL of largest Big Asset Management firms & Big Banks.
Here is an interesting link showing the massive size of the largest Big Asset Management firms & Big Banks:
https://www.advratings.com/top-asset-management-firms
Plus, those largest Big Asset Management firms & Big Banks largely exist as the largest investors & shareholders of each other.
Like a true CARTEL.
Like Standard Oil on steroids.
Here is an interesting link to a chart published by the Federal Reserve highlighting the massive reduction in the number of listed corporations in the U.S.:
https://fred.stlouisfed.org/series/DDOM01USA644NWDB
And the same trend in happening to small businesses.
Less competition generally equals higher prices.
And Corporate America has been pushing for inflation for nearly a decade.
Higher inflation means higher revenue, meaning greater ability to start paying off that massive corporate debt.
Then higher interest rates will kick in, after those Big Corporations have more manageable debt.
Higher interest rates will also mean more revenue, as consumer debt has also risen significantly.
But unlike those Big Corporations whom were able to benefit from inflation, U.S. households will continue to struggle under inflation first, then interest rate hikes.
The U.S. has now become a near completely controlled economy.
Which is often a central tenet of socialism.
Where way too many people have been misled into believing that “socialism” means more fairness & equality, but when neo-feudal Lords become the Central Planners of a “socialist” system. they alone emerge as the beneficiaries.
As they plan that system to direct more profit their way.
Even using “social welfare” as an excuse to profit off government benefits.
THE CORPORATO-SOCIALIST NEO-FEUDAL SYSTEM AT WORK.
My take away is that inflation is a savage form of class warfare which is why Biden et al will do nothing about it. Where I am confused is how this inflationary spike will play out because Neoliberal policies require cheap money as well as the substantive issues raised in Central Bankers on the ropes obviously there are connections I just can’t process them
The ‘connections’ are contradictions. One the one hand owners of bonds and other fixed capital incomes want inflation controlled since it eats into their wealth and income; so they favor Fed rate hikes. On the other hand, corporations don’t like too much rate hike since it raises the cost of borrowing and thus investment (although banks like higher rates that add to their net interest income). Also, US multinational corps don’t like higher rates since it results in an appreciation of the US dollar, which means when they repatriate their offshore profits earned in foreign currency in the countries they do business, they must convert profits from foreign currency to dollars. And if dollar appreciates (due to higher Fed rates), it means they repatriate few profits in dollar form. Also, rising Fed rates and dollar causes big declines in foreign currency exchange rates, that slow foreign economies (and offshore profits in those countries). It also raises fragility of foreign debt, both sovereign foreign government debt and dollarized private corporate bond debt–all of which can result in financial crashes in emerging market economies. So it’s a mixed picture for US capitalists. Some benefit from higher Fed rates; some not. Capitalist governments continually try to balance the contradictions, not letting either get too far out of control. But when crises deepen, the balancing act becomes more difficult. Sometimes they lose control. Then sovereign bond defaults occur and the IMF has to bail them out (e.g. Argentina, Turkey, etc.); or a sector of the global financial economy experiences a crash and crisis; or re-recessions of the real economy emerge. And in a globalized financialized capitalist economy today, the risk of accelerating contagion–real and/or financial–becomes more likely. Capitalism works by enriching the capitalists while feeding more crises and instability within itself. Capitalist policy makers are always trying to maintain an uneasy balance between enriching capitalists more and provoking more instability and crisis within their own system. That’s what’s behind its ‘boom and bust’ characteristic. Problem is the rich and their corporations benefit most from the ‘boom’, and then are the first to be bailed out when there’s a bust. The rest of the population has to fend for itself to different degrees depending on how important this or that segment is to the system itself. The last four decades illustrate the balancing act is getting increasingly difficult–more is going to the capitalists and their corporations during both pre-bust and post-boom, and less and less relatively to the rest. That’s my ‘short’ explanation.