Biden and the other G7 leaders are meeting in the Bavarian Alps this week. Apart from proclaiming they’ll never give up supporting Zelensky and Ukraine, G7 leaders announced they were planning two new sanctions on Russia.

Like most of the previous six phases of sanctions the purpose of the latest is to deprive Russia of revenues from exports. So far sanctions haven’t been all that successful in that regard, at least in the shorter term. While the USA has banned Russian oil and gas imports to the USA, those amounts and their respective revenue impact on total Russian export revenue is insignificant. Moreover, the ban on Russian oil exports to Europe do not begin until December 2022, while there’s no ban on Russian natural gas imports whatsoever. So little net impact on Russian energy export revenues from Europe either.

The sanctions on oil & gas Russian exports to Europe have been quite minimal to date. Meanwhile, Russia’s exports to China, India and rest of the world have been rising. As have global energy prices in general.  With accelerating global prices for oil and gas, and an increase in Russian energy exports to India, China and elsewhere, Russia’s revenues have been actually rising.

This rising revenue despite sanctions has presented something of a conundrum for Biden and the G7. The whole idea of sanctions is to dramatically reduce Russian revenues, not simply volume of exports! Sanctions thus far have had the opposite effect of what was intended—Russian energy revenues have risen not fallen.

So the G7 in Bavaria have come up with two more schemes to try to reduce Russian export revenues. But the thin mountain air must be affecting their thinking. The two new schemes are among the most desperate and economically absurd sanction ideas spawned thus far.

1. Ban Russian Gold Exports to Europe

The first absurd proposal being bandied about in Bavaria is to get Europe to agree to ban Russian gold exports to Europe.

The thinking is Russian revenues from gold constitute Russia’s second largest export revenue source, but at $20 billion a year gold sales revenue is still well below Russia’s oil export revenue of around $90 billion (before sanctions). Most of the Russian gold exports goes to the gold exchange in London where it’s ‘sold’ by Russia in exchange for other currencies. The G7 thinks denying Russia access to the London gold exchange will result in a big dent in its total export revenues and ability to obtain other currencies with which to purchase other needed imports for its economy. But there are problems with the G7’s proposed ban on Russia gold exports.

First, Russia could just as well sell its gold elsewhere in the world. It doesn’t have to sell it to the Europeans at the London exchange. Other major global buyers of Russian gold are Turkey, Qatar, India and other middle eastern markets. Gold prices have been rising globally, as inflation has driven up oil, gas, and other industrial and agricultural commodities. Gold is an asset that tends to rise in price with rising general price levels, which are now accelerating worldwide. With inflation, other countries will more than gladly buy up the Europeans’ share of Russian gold. Some may even then sell the gold back to the Europeans—at a marked up higher price of course.

The Demand for Russian gold will simply shift, from Europe to elsewhere. Russian gold export revenues will thus not fall on net; in fact, may possibly even rise as gold prices continue to rise with inflation–ironically in large part due to other sanctions in general.

Second, gold is an asset that provides a hedge against inflation. It may be that Biden can get the G7 leaders and their governments (and central banks) to boycott buying Russian gold. But what’s to stop individual investors in Europe from buying Russian gold in offshore markets, when it’s presently such an attractive asset? Will Biden extend sanctions on all the individual Europeans who simply shift their purchases of Russian gold from the London Gold Exchange to the gold exchanges in Turkey, Qatar and elsewhere?

2. Price Cap Russian Oil Exports to Europe

This is an even sillier proposal. Here’s the logic of how the price cap is supposed to work. Theoretically, Europe would all agree to buy Russian oil exports over the next six months but only at a deeply discounted price that all of Europe would agree on. In other words, set a ‘price cap’ at a level well below world market prices that are currently determined by supply in global oil spot markets. The lower price is supposed to cut Russian revenues from the oil exports to Europe—i.e. reduce revenues, the prime goal of all sanctions. The idea was first suggested by Janet Yellen, the US Secretary of the Treasury. That’s the Janet Yellen who told the world in February 2022 that inflation was temporary, remember!

Getting all of the G7 to agree to a price cap still requires getting the rest of Europe as well as Japan, So. Korea and others to agree to that price capt as well.   But isn’t Europe supposed to stop buying all Russian oil imports by end of 2022 per previous sanctions they’ve agreed to? Who believes the Europeans can agree to a price cap on Russian oil and implement that cap in three months (July-September)–and then for just three months more (October-December)? Europe can’t do anything in three months, or even six. Maybe the US and EU aren’t all that confident they can implement a full ban on Russian oil exports by December?

But even this isn’t the most absurd aspect of the ‘price cap’ proposal.

Assuming Biden could get all the G7 to convince all of Europe’s 27 nations on a super discounted price, there’s still the ‘small problem’ of what Russia’s response might be to all that. The G7’s faulty logic is the deep discounted price Europe is only willing to pay for the oil would be at a price much lower than even the 30% discount that Russia is now selling oil to India, China and elsewhere. The G7 presumably would offer to buy Russian oil only at a 50% discount off current world prices maybe? That would put pressure, as the G7 argument goes, on Russian oil sales to India etc. The Indians would then demand Russia oil prices at the G7 lower 50% discount price. Russia would realize further reduced revenues from oil lower prices to India, China, the rest of the world as well as to G7 and Europe.

This is a proposal so ridiculous it’s almost embarrassing. The problem with the G7 ‘price cap’ idea is there’s no reason why Russia would want to sell any oil whatsoever to Europe at the G7’s deeply discounted price cap level.

First, why should it when Europe says it plans to phase out all Russian oil by December anyway? Second, Russia has shown it is not concerned with reducing natural gas export revenues to Europe. It’s already cut cubic gas exports to Europe by one-third as part of its own economic response to Europe’s agreement with US sanctions on Russia and it’s warned Europe of another third soon.  Economic warfare cuts both ways. So what’s to stop Russia from just cutting off all oil exports to Europe—and well before December? Third, Russia would have to be pretty dumb to agree to sell oil to Europe at the latter’s ‘price cap’ level which would be well below Russia’s already 30% discount oil price sales to India? It knows the likely knock on effect that would follow. India as a long term oil customer is far more important to Russia than Europe which says it’s ending as a customer in just six months.  Finally, Russia knows if it cuts off all oil exports to Europe, it would just change the market flow of global oil, not reduce it. Russia would sell more to other countries, which might then just re-export it back to Europe in turn.

In short, the error with the G7 price cap idea is it assumes that buyers (Europe) can set the price for oil in what is a global sellers market! G7 may think they can stand market fundamentals on their head and make it work, but they are wrong.  No amount of G7 wishful thinking can make Demand determine Supply in today’s global energy markets, where broken and restructuring supply chains, sanctions, and war are the main determinants of price.

Both the proposal to ban Russian gold exports to Europe and the proposal to manipulate oil demand to reduce its global market price—and thereby deprive Russia of revenues—are ideas that reflect more the desperation of the US and G7 to find some way to make sanctions on Russia work in the short run when thus far they aren’t working very well, if at all.

The short run objective of sanctions–i.e. to reduce Russian export revenues–has not been working but the two latest desperate ideas won’t work any better.

Historians will wonder years from now why the US and its most dependent allies in tow—the G7 countries—embarked upon a scope of sanctions on Russia so soon after Covid’s deep negative impacts on global supply chains and domestic product and labor markets. Global markets, trade and financial flows were seriously disrupted by the Covid experience of 2020-21. And they had not recovered by January 2022 when US sanctions on Russia were escalated. Before global supply chains could heal, the US and its G7 allies embarked on sanctions that further disrupted and restructured those same supply chains while simultaneously setting off chronic global inflation that ravaged their domestic economies as well. History will show, it was all not well thought out.

Even less thought out, however, are the more recent G7 proposals to ban Russian gold and engineer a price cap on global oil—the latter in effect a fantasy that by somehow manipulating a region’s (Europe) oil Demand it could set global oil prices in general and thus over-ride Supply as the driver of oil price and revenues.

It makes one wonder about the qualifications of the current generation of world leaders (led by Biden and the US) playing with the geopolitical world order. And wonder even more about their even less understanding of the consequences of their economic actions on the world economy.

Dr. Jack Rasmus

copyright June 28, 2022

Watch my free-wheeling, hour long YouTube interview with hosts, Jason Myles and Pascal Roberts, of ‘This Is Revolution’ folks in Oakland, CA, on Thursday, June 23, 2022 on topic of ‘Inflation and the Cost of Living Crisis’.

Go to YouTube at: https://twitter.com/i/broadcasts/1YqJDqpLDDaxV

(Note: first 10 minutes of show is a fund raising interview with another guest)

by Dr. Jack Rasmus
Copyright 2022

The focus of the US media and economists for the past several months has been increasingly on inflation. In recent weeks, however, US policymakers awoke as well to the realization that inflation is chronic, firmly embedded, and growing threat to the immediate future of the US economy.

A qualitative ‘threshold of awareness’ was reached this past week when the US central bank, the Federal Reserve, accelerated its pace of rate hikes by 75 basis points—purportedly to bring the rate of price hikes under control. Whether the Fed can succeed in taming inflation and do so without precipitating a recession remains to be seen but is highly unlikely. Taming inflation without provoking a recession is thus the central economic question for the remainder of 2022.

Clearly some think this is possible—i.e. that further rate hikes will moderate the pace of inflation without driving the real economy into recession and result in what is called a ‘soft landing’. Clearly the Fed and the Biden administration believe that will happen. But a growing chorus of even mainstream economists and bank research departments don’t think so. Almost daily new forecasts by global banks and analysts appear indicating recession is more than 50-50 likely—and arriving sooner in late 2022 than in 2023.

This article concludes unequivocally that today’s Fed monetary policy of escalating interest rates is not capable of reducing inflation while avoiding recession—any more than similar Fed rate hikes in 1980-81 did. And this time rate hikes will not need to rise as high as in 1980-81 before they trip the economy into another bona fide recession.

As of June 2022 the Fed raised its benchmark federal funds interest rate to a high end range of 1.75%. It plans to double that at least by the end of 2022, to a 3.5% to 4% range. But the US economy is already nearly stagnant and signs are growing it is becoming even weaker. As this writer has argued since the fall of 2021, a Fed rate to 4% or more will almost certainly mean a ‘hard landing’, i.e. recession. Moreover, it will not reduce inflation that much either. Prices will not slow appreciably until the US is actually well into a recession. That means a condition called stagflation, a contracting real economy amidst rising prices and an economic scenario not seen in the US since the late 1970s. Stagflation has already arrived if one considers the almost flat US economy in the first half of 2022; and it will deepen once recession begins in the second half.

To understand why inflation won’t abate much in 2022, and why recession will occur sometime before the current year’s end, it is necessary first to understand the Anatomy of inflation (i.e. structure and evolution) that has emerged over the past year. That anatomy, or structure, of inflation shows its current causes are not responsive to Fed rate hikes in either the short or even intermediate term of the next twelve months.

It is necessary to understand why monetary policy in the form of Fed rate hikes will not dampen inflation much before recession occurs—as well as why those same rate hikes will have a greater effect on precipitating a recession long before the Fed can bring the inflation rate down to its long run historic target of only 2%.

The Anatomy of US Inflation: 2021-22

After rising moderately around 4% annual rate when the US economy first opened in the spring of 2021, it is important to note the pace of consumer prices remained virtually steady for the following four months throughout the summer of 2020, at around 5.5%. (Bureau of Labor Statistics New Release, May 11, 2022, Chart 2). That pace began to rise steadily every month only after late August 2021.

Beginning last September 2021 US Inflation not only began accelerating but has since become embedded and chronic. Even US policy elites can no longer deny it. Earlier in 2022 Treasury Secretary Janet Yellen opined publicly that US inflation would be ‘short lived and temporary’. In June she then recanted and apologized for the inaccurate prediction. And this past week admitted that inflation is now ‘locked in’ for the remainder of 2022.

What then are the reasons and evidence inflation has become permanent and chronic—at least until recession sets in?

There’s no doubt that Demand, due to the reopening of the US economy after the worst of Covid in March-April 2021 contributed to the emergence of inflation last spring-summer 2021. But excess Demand is not the primary explanation for it. Demand for goods and services rose during April-May 2021 as workers returned to their jobs and wage incomes grew. However, the record shows after rising modestly in April-May 2021, consumer prices leveled off throughout the summer of 2021, June to August 2021, at just over 5%. It remained steady thereafter at that level for those months as the economy continued to re-open.

The surge in prices at a faster pace only began in the late summer, around August-September. That price escalation coincided with rising problems in Supply chains—both in the form of global imports to the US as well as domestic US supply issues associated with goods transport, warehousing, and skilled labor access. In short, as the US economy attempted to reopen global supply chains were still broken and, domestically, US Product and Labor markets were severely wounded by the impact of Covid events of March 2020 through March 2021.

Conservative politicians, business interests, and their wing of the mainstream media nonetheless claimed at the time—and mostly still maintain today—that it was the too generous, excess income support from the American Relief Plan (ARP) social safety net programs passed by Congress in March 2021, and their predecessor programs a year before, that was responsible for excess Demand in mid-2021 and thus the escalating inflation that followed after September of that year.

But even US government data don’t support that view. The ARP authorized only $800 billion spending in the entire next twelve months. The 3rd quarter—the first full quarter when ARP program spending hit the economy and when prices began their accelerations around August–saw probably no more than $200 billion from ARP programs entering the economy. The supplemental income checks had already been distributed and mostly spent in the 2nd quarter. What remained in the 3rd of any magnitude were supplemental unemployment benefits, modest rental assistance, and the child care subsidies for median and low income families introduced that July. $200 billion injection was probably high as well. Certainly not all the $200 billion income injected was actually spent that quarter. (As economists admit, consumers’ marginal propensity to spend added income is always less than ‘one’—i.e. they don’t immediately spend it all). $150 billion or so was probably actually spent. That $150 billion compares to a 3rd quarter overall GDP of more than $5 trillion! There’s no way an economy that size could result in the price acceleration that began at that time from an injection of $150 billion on more than $5 trillion.

Moreover, $150 billion may be too high an estimate as well. Much of the ARP stimulus was cut off significantly by early September, the last month of the 3rd quarter: for example, supplemental unemployment benefits provided previously for 10 million workers was ended, along with rental assistance, the Payroll Protection Plan grants for small businesses, and other lesser injections.
In short, to the extent Demand contributed to the rise in prices in both the 2nd and 3rd quarters, that Demand effect is explainable far more by the continued reopening of the economy rather than attributable to the income support programs of the American Rescue Plan that amounted to no more than $100-$150 billion throughout the entire 3rd quarter when prices began to accelerate. So much for arguments that workers were too flush with income from jobs they were returning to and the government over-generous ARP income programs! The data just don’t support the view it was Demand and government spending Demand in particular that was responsible for the onset of escalating prices last September 2021.

The more likely explanation behind escalating prices in late summer 2021 was global supply chain bottlenecks, especially involving goods imports from Asia and China in particular. In August-September it was mostly goods prices driving inflation. Consumer spending on services again was just emerging. A problem with Supply chains was corporations around the world had shuttered their operations during the worst of Covid, allowing workers and suppliers to drift away. When the economy began to reopen in the summer of 2021, many of these workers and suppliers were not available. That was especially true with global container and other shipping companies. There just weren’t enough ships available to deliver goods from Asia to North America. What shipping was available was initially dedicated to transport between Asia countries first. In addition, USA west coast ports had a similar problem: the ports were short of traditional workers and transport. Not only port workers but independent truckers that carried the freight from the Los Angeles port, for example, to inland central warehouses. And from those mega-warehouses to regional warehouses from which goods are then distributed to companies’ storage and stores. Like the trucker shortage, there was an insufficient return of workers to warehouses as well. A similar, somewhat lesser labor shortage problem existed with railway workers. In other words, domestic US supply chains were still broken—along with global supply.

The 2020 and 2021 US government fiscal stimulus programs were supposed to avoid the domestic supply chain (labor and transport) problems by providing US businesses with $625 billion in loans and grants with which to keep their workers employed during the Covid shutdowns of the economy. It was called the Payroll Protection Program, PPP. More than three fourths of the PPP handouts to businesses—virtually all the loans were converted to outright grants—were earmarked to be spent on subsidizing wages of employees. The rest on direct expenses of business, like utility costs, interest on loans, etc. However, the record now shows this didn’t happen. There was no inspection to ensure how the $625 billion of grants was spent. Most of the businesses receiving PPP grants laid off their workers anyway. Thereafter, as the US economy tried to reopen the same businesses couldn’t find their laid off workers fast enough. Domestic supply chain problems were the consequence.

It is obvious that the escalation of US inflation that commenced around late August-September 2021 was associated with Supply chain issues—both global and domestic. It was not Demand. Probably three-fourths of the escalating prices at the time were Supply related; the remainder Demand—and that Demand more due to faster reopening of the economy than to ARP income programs which were actually being faded out by September 2021.

Overlaid on this scenario of mostly Supply driven inflation, combined with some Demand caused price escalation, was yet another important development that emerged as a major factor as the 3rd quarter 2021 ended: i.e. widespread price gouging by monopolistic US corporations with concentrated market power that enabled them to raise prices beyond normal Demand and Supply.
As inflation rose and the public was increasingly aware of it, corporations with monopolistic power (i.e. where four or five or fewer companies produced 80% or more of the product or service in the economy) manipulated and took advantage of that public awareness of rising inflation in order to raise their prices—even when their respective industry was not experiencing supply chain issues.

A good example is the US oil corporations that didn’t have a supply problem at all at the time and still don’t. US oil corps were capable then, as now, of raising their output of oil in the US (i.e. supply) by at least 2 million more barrels/day. They chose instead to leave that oil in the ground, not to expand production at US refineries, and refused to reopen many of the drilling wells they had capped during the worst of the preceding 2020-21.

In the months preceding the onset of Covid shutdowns in March 2021 US oil corps were producing more than 13 million barrels per day; by fall 2021 they were producing barely 11 million per day (and still are). Nevertheless, US oil corporations raised their prices faster than perhaps any other industry. By the fourth quarter 2021 energy prices were rising at 34.2% annual rate, according to the US GDP accounts (US Bureau of National Economics, NIPA Table 2.3.7).

With prices now surging after September 2021 the important new factor also driving prices was thus neither supply nor demand related. It was price manipulation by US corporations with market power to do so. And it was not just oil corporations, although they were responsible for more than half of the price index surge at the time—and still are. Other food processing corporations, airlines, utilities, and so forth with monopolistic power did so as well. This political (market power) cause, combined with Demand and Supply forces, after August resulted in yet a further surge of prices through the remainder of 2021.

Beginning in 2022 further forces also began to determine the US Anatomy of Inflation:

Commencing March 2022, added and overlaid onto 2021 inflation drivers was US and EU sanctions on Russia commodities, which were especially critical as the global economy was still in the process of trying to reopen and restore and heal Covid shattered global supply chains.

Russia supplies 20% to 30% of many key global commodities—including oil, gas and nuclear fuel processing in the energy sector. But also industrial metals commodities like nickel, palladium, aluminum and other resources required for auto, steel and other goods manufacturing in the US and EU. Also agricultural commodities like 30% of the world’s wheat; 20% of global corn production used in production of animal feed; 75% of critical vegetable oils like sunflowers; and 75% potash fertilizer—to name the more important.

Even before US/EU sanctions on these key Russian commodities began affecting actual supply, global financial commodities futures market speculators began driving up commodity inflation in anticipation of the sanctions eventually taking effect. Speculators were quickly followed by global shipping companies that jacked up their prices before actual sanctions. They were joined in turn by shipping insurance companies. All along the commodities supply chain, capitalists in sectors capable of exploiting the coming sanctions-driven shortages began manipulating prices in anticipation. Physical shortages from sanctions thereafter began to have a further impact late in 2nd quarter 2022 as war in Ukraine intensified and sanctions were implemented. The speculators, shippers and insurers thereafter added further price increases to the general sanctions effect.

When US Treasury Secretary, Yellen, voiced her prediction earlier in 2022 that inflation would be temporary she no doubt did so based on the erroneous assumptions that somehow the global and domestic supply chain problems of late summer 2021 would be resolved in 2022, and corporate price gouging that overlaid supply chain issues would also somehow abate. She clearly did not factor in to her inflation prediction the very significant effect of war and sanctions.

President Biden called the now further escalation of prices in spring 2022 as ‘Putin’s Inflation’. That claim might be laid on shortages of some agricultural products directly disrupted in Ukraine war zones, but can’t be laid on global energy prices which were virtually all from within Russia’s economy not Ukraine’s. Thus to the extent inflation is due to rising energy prices—which accounts for more than half the total price rise at the consumer level—it is more attributable to Biden’s sanctions and thus is ‘Biden’s Inflation’ rather than Putin’s.

By the 2nd quarter 2022 all the above combined forces driving inflation (i.e. moderate Demand, global & domestic broken Supply chains, widespread corporate price gouging, oil, energy & commodities prices) converged to produce an embedded, chronic, and continued rise of inflation.

For the period for which latest prices are available, March-May, consumer prices (CPI Index) have been rising at a steady 8.5% rate while producer prices that eventually feed into consumer prices have been rising at an even faster rate of 10-11% for the three months. Furthermore, pressure on producer prices (that feed into consumer prices) may accelerate even that 10-11% current producer price hike average. For example, the most recent Producer Price Index released for May shows the category of ‘Intermediate’ goods and services prices are rising even faster. Intermediate processed goods (e.g. steel) have been rising at a 21.6% annual rate over the past year, while intermediate unprocessed goods (e.g. natural gas) have risen at a 39.7% annual rate.
Supply chain and Demand forces of the past year, May 2021 through May 2022, will likely continue driving prices at similar rates through this summer 2022 and likely the rest of the year as well. There appears no end in sight, for example, for the Ukraine war and the Sanctions on Russia which continue to tighten. Price gouging in these commodities impacted by war and sanctions will certainly continue as will the general phenomenon of monopolistic corporations price gouging. Commodity futures financial speculators will continue to speculate; shipping companies continue to manipulate price to their advantage; and insurers continue to hike their rates on bulk commodity shipping worldwide.

In addition, new forces are also emerging this summer 2022 that will contribute still further to chronic inflation throughout the rest of 2022 and possibly even further beyond.

One such new factor is rising Unit Labor Costs for businesses, which many will try to pass through to consumers this summer and beyond. Unit labor costs (ULCs) are determined by productivity change for businesses and/or wages. If wages rise, ULCs rise; similarly if productivity falls, ULCs rise. While wages appear to be moderately rising in nominal terms, productivity is falling precipitously. The most recent data on productivity trends in the US indicate productivity collapsing at the fastest rate since data was first gathered in 1947. That’s because business investment is stalling in the face of growing economic uncertainty about inflation as well as likely recession. Wage rise contribution to rising ULCs is on average modest, as Fed chair Jerome Powell has admitted. Wage pressures are mostly skewed to the high end of the labor force where highly skilled professionals are ‘job hopping’ to realize wage income gains of 18% on average; meanwhile, low paid service workers’ wages are also rising some as many have refused to return to work at the US minimum wage of only $7.25/hr which hasn’t changed since 2009. Service businesses have had to offer more. But the great middle of the US labor force is not experiencing wage gains to any significant extent. Thus the ‘average’ wage hikes, as moderate as they are, do not account for the rising ULCs which businesses will soon, if not already, begin to ‘pass on’ to consumers in higher prices for the remainder of 2022. Treasury Secretary Yellen herself now admits inflation will continue high throughout 2022—no doubt in part reflecting the new forces adding to inflation pressure.

Another emerging factor of growing importance to the continuation of inflation trends throughout 2022 is the now emerging ‘inflationary expectations’ effect. Cited by Fed chair, Jerome Powell, in his most recent press conference following the Fed’s latest interest rate announcement, Powell referred to the recent University of Michigan consumer survey showing inflationary expectations now definitely emerging as well.

As inflation continues to rise, inflationary expectations mean consumers will purchase early, or even items they had not planned to buy, in order to avoid future price hikes. That means another Demand force that adds to the general anatomy of inflation, just as falling productivity and higher ULCs represent an additional Supply force contributing to future price hikes.
In short, now entering the mix of causes in 2022 are inflationary expectations, falling productivity driving up ULCs and cost pass-through to consumers, and the growing pressures on commodity inflation due to the Ukraine war and sanctions on Russia.

When all these emerging 2022 factors are added to the 2021 economy reopening and Supply chain causes of inflation—as well as the continuing corporate price gouging—the broader picture that appears reveals multiple causes of inflation—many of which mutually feed back on the other; some political, some unrelated to market supply or demand, and none of which appear to be moderating significantly. In fact, corporate price gouging, manipulation of commodities markets by speculators, Ukraine war, and sanctions on Russia all represent contributions to inflation that may well accelerate over the next six months.

Stagflation May Have Already Arrived

Stagflation is generally defined as inflation amidst stagnate growth of the real economy. That is already upon us in its first phase: US GDP for the 1st quarter of 2022 recorded a decline of -1.5% while the Atlanta Federal Reserve bank’s ‘shadow’ GDP estimates zero GDP (0.0%) growth for the current April-June 2nd quarter! Should the Atlanta Fed’s forecast prove accurate, that’s stagnation at best. And if the 2nd quarter actually contracts, then it represents a yet deeper phase of Stagflation.

Just as mainstream economists and media debated for months whether current inflation was chronic or temporary, the same pundits now debate whether stagflation will soon occur when in fact it’s actually already arrived. (see Larry Summers’ latest pontification to the business media where he warns of stagflation around the corner when it’s already turned it).

The next phase of stagflation coming late 2022 and early 2023 will reflect the contraction of the real economy—i.e. a recession. GDP won’t simply stagnate with no growth, but decline. Indeed, recession is already damn close if we are to believe the Atlanta Fed’s 2nd quarter GDP forecast and the various early economic indicators now appearing. Stagflation may already be here, as the 1st quarter US GDP -1.5% contraction is followed by another contraction—not just zero growth—in the current 2nd quarter. Two consecutive quarters of contraction define what’s called a ‘technical recession’. Actual definition of a recession is left to the National Bureau of Economic Analysis, NBER, economists to call. They always wait months after the fact to make their call. But ‘technical recessions’ almost always result in NBER declarations subsequently of actual recession. And the US economy is clearly on the cusp of a technical recession at minimum.

Biden’s Empty Inflation Solutions

Biden’s various solutions to date are more public relations events designed to make it appear something is being done instead of actions that directly address the problem of embedded and chronic US inflation.

Biden’s proposed solutions include getting US oil corporations and other global producers of oil to raise their output; somehow convincing countries who agree with US sanctions in Russia to enforce a ‘cap’ on the price of oil worldwide; reducing tariffs on imports from China to the US; offsetting the price of energy productions for US consumers by lowering the price of other consumer goods; increasing competition among US monopolistic corporations by subsidizing new competitors to enter their industries; introducing a federal gas tax suspension.

Despite Biden’s railing against the oil companies, shipping companies, and other obvious price gougers, it’s been all talk and no action. All his proposals have not been implemented to date. They’ve been either just ideas raised with no actual executive or legislative proposals. Or they’ve already been rejected by Congress. Or, even if implemented, will be ‘gamed’ and absorbed by corporations with little net impact on consumer prices. Or will produce insufficient additional global output of oil, gas, and energy products to dampen energy price escalation much.

Biden’s strategy has been to ‘talk the talk’ without the walk, as the saying goes.

The only actual solution the administration has quietly agreed upon, but dares not admit publicly, is to have the Fed precipitate a recession by means of its record level of rapid interest rate hikes over this summer 2022 now in progress. And as they say, ‘that train has left the station’. It’s a done deal. Biden’s ‘solution’ is to have the Fed precipitate a recession.

Enter the Federal Reserve

The Fed itself has already decided on recession! Moreover, it’s a policy template that’s been employed before.

The origins of the coming recession appear very much like the 1981-82 recession. At that time the Fed also precipitated a recession by aggressively hiking interest rates with the objective of ‘Demand destruction’ as it is called. In other words, then as now, the strategy was to make households’ and workers’ pay by destroying wage incomes by means of layoffs, for what was essentially at the time a Supply caused inflation associated with rising global oil access destruction by OPEC and middle east oil producers.

At 75 basis points Fed rates are already rising at a pace not seen since 1994. !981-82 rate hikes were even more aggressive. However, as this writer has argued, the global economy is more fragile and interconnected today than it was in 1980-81 when the Fed raised rates to 15% and more. Today’s global capitalist economy won’t sustain rate hikes even a third of that 15% before contracting sharply.

It is more likely than not that the Fed will continue raising interest rates at the 75 basis points when it next meets in July, and possibly the same in the subsequent meeting. At 4% for its benchmark federal funds rate (not at 1.75%) the economic damn will crack. It won’t even get to the one-third of 1982 level, the 5%.

Why the economy will slide into recession well before the 5% rate level was discussed by this writer in 2017 in the book, ‘Central Bankers at the End of Their Ropes: Monetary Policy and the Coming Depression’, Clarity Press.

In the sequel to this essay, why the US real economy is quite fragile today is addressed including most recent evidence of a weakening US real economy. Also addressed is why Fed federal funds rate increases to 4% or more will precipitate a serious US recession sooner rather than later, and, not least, why Fed rate hikes of that magnitude will likely have severe negative impacts on financial asset markets as well, provoking serious liquidity and even insolvency crises in the global capitalist financial system.

Should financial asset contraction occur along with a contraction of the real economy, then the 2022 recession will almost certainly deepen in 2023. And in that case the economic crisis will appear more like 2008-10 as well as 1981-82. Or perhaps a merging of the two recession dynamics into one.

Dr. Jack Rasmus
June 20, 2022

The US Central Bank, the Federal Reserve, today raised its benchmark interest rate 75 ‘basis pts’ (3/4 %). And promises more of the same in July and thereafter in rest of 2022. Will it halt inflation? Or precipitate recession sooner? What are the contradictions in Fed decision?

Fed chair Jerome Powell’s announcement today targets, as Powell himself indicated in press conference following the announcement, consumer Demand and spending to bring down inflation.

But Powell himself admitted several times in his press conference Q&A session that raising rates will have no effect on Supply problems and global political instability driving US inflation–specifically global commodity prices, supply constraints caused by the Ukraine War (and by implication US sanctions on Russia), China’s slowing economy due to its recent Covid shutdowns and its impacts on global supply chains, and on continued supply chain problems world wide in general.

So how will targeting Demand and consumer spending contain an inflation that is driven primarily by global supply, global political instability and, I might add, monopolistic US corporations manipulating supply issues to raise their prices? Short answer: it won’t. Targeting US Demand (aka US consumer) to resolve a global Supply problem will have little to no effect in short run, although will should rapid rate hikes precipitate a US recession by year end 2022.

US elites and capitalists have decided to ‘wash their fiscal policy hands’ and to let the Fed address the inflation crisis more or less on its own. Consumer prices are both chronic and embedded in the economy, averaging 8.5% (CPI) last 3 months and equally chronic in producer prices (PPI) rising even faster around 11%. Fiscal policy solutions to address inflation are DOA: there’ll be no tax hikes and reducing fiscal spending given plans to escalate Pentagon $54B new war spending for Ukraine recently and the projected further $85B called for in the next US budget.

Powell’s decision to accelerate and increase rate hikes means US elites have decided that Monetary policy–i.e. the Fed–now has the task alone to try to control inflation. It’s the only inflation game in town. Politicians facing elections will have the Fed ‘take the heat’ for failing to control it. That means the ‘pain’ will be on the backs of the American consumer as Fed rate hikes come faster and larger now, depressing the real economy, jobs, wage incomes and consumption as a solution parading for what is really a global Supply side (war, sanctions, commodity speculation, supply chains, China, etc.) caused inflation.

The Fed’s Powell believes by raising rates 75 basis points every six weeks between now and December, h can achieve a ‘soft landing’ of the US economy. The Fed’s prediction is prices will come down to 2% in 18 months without a recession and without the unemployment rate rising from current 3.7% to no more than 4.1%.  GDP this year will still achieve around 2% (despite its -1.4% contraction 1st quarter 2022 and the Atlanta Fed recent forecast of 0% growth this 2nd quarter, which means a GDP growth rate in second half of 2022 of around 5%. How that 5% second half growth occurs with a planned Fed doubling of its interest rate levels between now and year’s end will be an interesting economic trick.

For more of my commentary in the following radio interview (and subsequent interviews to be posted)



Watch my YouTube video presentation of Sunday, June 12, 2022 on ‘US Sanctions and the Future of the American Empire’, to the Institute of Critical Study of Society. The presentation is an hour long, followed by another hour of Q&A on the topic.

Go To YouTube at: https://www.youtube.com/watch?v=FCoFQSG3ZdQ

Listen to my hour long Alternative Visions radio show of last friday, June 10, for my analysis of US sanctions on Russia and why most are not working as intended, their negative blowback on US & western economies’ inflation and coming recession, and long term consequences for US global economic hegemony.




Dr. Rasmus reviews the content and consequences of US/NATO imposed sanctions on Russia since the Ukraine war was launched in February. A brief history of US use of sanctions is followed by description of sanctions since February. The categories of sanctions: goods, financial, individuals. Why oil and gas sanctions have failed. The cost of sanctions to US/ Europe, and Russia. Countries involved. Relation between sanctions and accelerating inflation globally. Impacts on US economy, Europe’s, and emerging market economies worldwide. Biden’s tepid solutions to inflation and why they’re failing. What alternatives aren’t being discussed. Consequences of sanctions for restructuring of global capitalist economy and risks for US global economic empire.

For listeners unable to listen to my two recently posted hour long podcasts of my Alternative Visions radio show on the topic of ‘Anatomy of Inflation’, the following shorter (5-20min.) radio interviews may be useful.

Critical Hour Radio (6/3)


Critical Hour Radio: (5/31)

WBAI Pacifica Radio

Critical Hour Radio: (5/26)


In his Friday, June 3 Alternative Visions Show, Dr. Rasmus concludes the analysis of ‘Anatomy of Inflation (Pt2)’ and dissects the US Labor Dept’s latest monthly Jobs Report, showing the growing indications within the Report that jobs markets are actually weakening. As a lagging indicator (at least 6 mos.) of US economy’s general direction, coming jobs reports will show labor market further weakening and even decline as well, Rasmus argues. The radio show concludes with general comments on the global economic war launched by US imperialism on its major challengers, Russia & China, as US neocons restored and continue under Biden their control of US foreign policy in the post-Trump era. (Next week’s show will focus on the US sanctions–costs & consequences–on Russia as the current centerpiece of the emerging global economic war to restore US empire’s global economic hegemony).




Dr. Rasmus picks up where last week’s show, continuing the discussion of the Anatomy of Inflation in the US and why inflation will continue chronically for months more. Why falling productivity, rising unit labor costs, inflationary expectations, further intensification of sanctions and war in Ukraine will all add to inflationary pressures. Biden’s various failed initiatives to dampen inflation, and rejected alternatives that could address inflation, are discussed. The show next considers today’s just released jobs report, and looks behind the numbers to show the jobs trend is slowing and hiring freezes appearing that will change the direction of this lagging indicator in coming months. Meanwhile wage gains are falling further behind prices and for most workers are much less than the official reported ‘average’ of 5.2% which is skewed by 18% gains for professionals and managers at the top end of the wage structure and for minimum wage hikes needed to attract workers to service jobs again at the low end. The show concludes with a preliminary discussion of the nature of War in general, and economic war in particular, today. (Next week’s show: ‘Russian Sanctions and their consequences’ for EU, US, and global economy’)

A reader, James McFadden, with whom I exchange views on occasion, recently asked me some astute questions about the bigger picture behind the war in Ukraine. Why is it, he asked, Europe seems to be going along with US war and economic policies associated with Russian sanctions and War in Ukraine when it is obvious Europeans will pay a heavy price in terms of inflation and economic instability, most likely another recession? Does the European billionaire class see a new economic opportunity from allowing an economic crisis in Europe to occur from the outcome of sanctions and war?

In reply to James, I offered my analysis of the answer to that question, as well as some broader reflections of what’s behind the war and sanctions from both a US capitalist vs. US neocons perspective. The war and sanctions are best understood in a broader context of 21st century Neoliberal capitalism resorting to increasingly aggressive policies in order to ensure not only US global imperial hegemony but also to ensure an ever increasing accumulation of wealth by certain sectors of the US economic capitalist class. In short, it’s not simply a question of nations in conflict; only a class analysis in each of the major players (US, Europe, Russia) can reveal what’s going on behind the war.

Here’s James’s question (followed by my reply)


I’ve been pondering the following question. Why is the EU (Brussels) backing the pro-war “isolate Russia expand-NATO play” when it is clearly against Europe’s self interest – especially its economic interest?

They must understand that invasions and occupations don’t really work – that Russia can’t mount invasions of other EU countries and can barely manage this annexation/support of the Donbas region.
They must understand that Ukraine is a corrupt basket case economy run by even more corrupt oligarchs.
They must know that the cut-off of cheap Russian oil/gas will crash the European economy and make them even more dependent on, and under the control of, the US.
Is Brussels so controlled by the US that it is no longer capable of rejecting the policies imposed by the US?
Or is Brussels real constituency the billionaire class, and the billionaires see an EU economic crash as a positive development — like the 2008 US crash — a chance to bailout and create a massive wealth transfer?

After a reading some articles recently, I was reminded that Brussels, like all neoliberal organizations, probably answers to the billionaires – the Davos crowd – transnational corporations, bankers and billionaires. These organizations and rich elites don’t give a crap about Ukraine, and know Russia is incapable of invading any other NATO country. So why is the EU (Brussels) pressuring European leaders to implement sanctions on Russia against Europe’s self interest? I don’t think it is just that the US controls Brussels — there must be some alignment of interests. And I suspect the answer is this is a planned crash of the Europe economy, which was already struggling under Covid. The billionaire class is sitting on $20 trillion with nowhere to invest and a failing EU economy headed into recession. So a war and economy crash can be blamed on Russia (rather than EU austerity policies), justify wasteful military spending that is profitable, and justify bailouts which mainly go to the rich and multi-national corporations. Most average Europeans will go bankrupt and lose what little assets they have which will be bought up with that $20 trillion on the cheap. Is this is a play to duplicate the 2008 bailout-buyout to create a neoliberal rentier economy in Europe. Neoliberal austerity needs a crisis to push through its policies to support the rentier/banker class at the expense of the working class Europeans. It seems this war is not just about US self interest (which clearly exists in oil, gas, agriculture, and military profits), not just about US/NATO pressuring Europe to conform and firming up US hegemony, not just about the threat of a Russian invasion of NATO (which all the leaders know is nonsense). Brussels is pressuring European leaders to support sanctions in order to benefit the Davos crowd — create a crash, justify a bailout, and implement a neoliberal rentier economy that serves the transnational corporations and their billionaire owners. And it seems likely the planning for this has been going on for years.

I’d be interested in your thoughts.


My Reply to James

In answer to your first paragraph: three possibilities apply, I think.

First, Europe really doesn’t have any independent foreign policy, in its own interest: it hasn’t for quite some time. It is comfortable letting the USA determine that. It also finds it economically useful to let US pay most of its defense bill. That allows EU elites to provide social benefits to their non-elite classes that allows them to stay in power. The EU could not ‘take away’ those benefits now after decades. It would seriously destabilize their societies if they tried.

Second, it will eventually be revealed the US has likely made some very generous economic promises to the EU if they go along with driving Russia out of the EU economy. It’s not just about gas or oil; it’s about the USA wanting Russia out of Europe’s economy completely. Why? So US capitalists can move in and replace them. That’s a very big new profit center for US capital in many industries.

Third, there’s a massive capitalist economic windfall to the US sanctions, in which Europe will participate. EU gets to keep its share of the seizure of Russian assets. That’s $300 billion in liquid assets globally just in banks and central banks. And who knows how much more windfall will come from sales of Russian physical assets in Europe. Asset seizure is a form of economic piracy. The US has discovered that sanctions in the recent past are very profitable. The cases of just Iran and Venezuela come to mind, but before that Iraq, Libya, etc. But seizure of Russian assets takes the piracy to a new level. Europe finance capitalists will benefit especially greatly. Given their recent chronic losses I’m sure they find wealth accumulation by asset seizure enticing.

I’d add that inflation from the war is also very profitable for capitalists in general and will be no less so for European capitalists. Inflation ravages wages and fixed incomes. But for finance capitalists it means interest rates will rise and with that so too will the net interest income of bankers and finance capitalists. The working classes and small businesses that need to borrow regularly to keep afloat will pay the price. But big capital likes inflation. It also means their competitors, who fail to weather the coming inflation storm can be bought out cheap as their businesses face default. Not least, inflation may lead to stocks and financial markets price deflation. But that’s followed typically by major financial asset buying on the cheap and asset price speculation that yields great profits in the longer run. So don’t think inflation from the war and supply crises means bad times for everyone; for certain capitalist sectors it means great profit opportunities.

In reply to your second paragraph and your point that invasions and occupations don’t really work I would say, Ah, but they do…for certain economic interests. Especially for oil, war-defense producers, big agriculture and others that benefit from escalating war spending by governments. And it doesn’t matter if after years the military conflict is not decisive, or even if the US has to retreat, leaving chaos in its military wake (as it did throughout middle east). War for capitalists is not about ‘winning’ militarily; it’s about ‘winning’ economically and even failed wars can be very profitable. Remember Vietnam?

The tendency is to view wars as conflicts between nations. True. But to understand them deeper, it’s necessary to dissect ‘the nation’ and explore which segments within a class benefit the most, the least, or don’t benefit and pay the cost of war.

As for your comment that Russia can’t mount a complete invasion of Ukraine, you’re right. It simply doesn’t have the military forces. It ‘invaded’ with only 75k combat troops on four fronts. That violates the number one principal rule of war: concentration of forces. Putin and his advisers probably thought originally the Zelensky govt. would capitulate if they encircled the big cities in a show of military force. That’s probably what Putin’s advisers told him (and why he probably sacked 100 of them recently). Russia intelligence isn’t any better than the US’s when it comes to predicting these matters. Putin also underestimated, I believe, the eight years since 2014 which the US had to retrain, equip, and supply the Ukrainian army.

And he likely didn’t foresee the role US satellite, cyber, and other tech means could play assisting the Ukrainians in combat. (How else could 22 Russian generals be targeted and killed, except by US surveillance and cyber detection of Russian communications). And how could a US neptune missile sink the Russian Moskva cruiser without US direct operation assistance). Also, I think the Russians entered the conflict thinking the strategy would be more like world war II and massed armor attacks. However, that kind of warfare is gone for good given the new technologies. It’s now a war of intelligence, cyber interdiction and distraction, long range smart missiles, drones, long artillery, and infantry entering after long range duels just to mop up an area. Tanks and heavy armor are now just slow moving, sitting ducks for satellites, drones, and smart missiles. Ditto for slow moving sea going warships. We’ll never see massive tank battles or ship to ship confrontations again. Neptune, javelin, Nlaw, stinger, weaponized drones, and other missiles render them all outmoded tactically.

Russia erred in dividing its limited resources along four fronts when it first invaded. Encircling Kyiv and Kharkhiv with tank battalions only made them easy targets. I don’t think Russia ever intended to assault and try to take Kyiv or Kharkiv. Typically such assaults in concentrated urban environments requires a ratio of 4 offensive battalions to 1 defensive. Russia just didn’t have the forces to assault big cities and it knew it from the beginning. After a symbolic attempt to intimidate Ukraine into capitulation failed (the US would never allow Zelensky to do it), Russia properly refocused (i.e. turned to concentration of forces) on the Russian held areas in east and southern Ukraine. That is, it finally concentrated its forces instead of dissipating them along four fronts.

Mariupol was a major victory for Russia and it has shaken Zelensky as well as US. Should Russia encircle now Ukrainian forces around Severodonetsk and Lysychansk, as appears now likely, it will mean another significant military defeat for Ukraine. Whether Russia thereafter tries another encirclement targeting Slovyansk remains to be seen. Or goes on after that to take cities Dnipro and Zaparozhia. Ukraine and US media trumpet the Russian withdrawal from Kyiv as a ‘defeat’. But it is unclear if Ukraine forces drove them out or they just withdrew to the east. To some extent, the same can be said for Kharkhiv. Russia doesn’t have the forces to assault a large city. In any event, it would mean razing it to the ground, creating a negative international spectacle and making any armistice difficult at some point.

In just the past week we’ve seen the NY times editorial questioning whether further escalation is wise for the US. Certainly the trend has been in that direction, given dumb statements by Biden, Pelosi and Austin. I believe the neocons in the US, who have been driving 23 years of military adventures by the US, are firmly pushing a very malleable Biden and Democrats in that direction. The neocons have been aided in escalation by rabid anti-Russia NATO latecomers in the Baltics and Poland who just want the US to station big divisions and latest tech weaponry on their eastern borders. The US $ influx that comes with that is welcomed as well, of course. Elites in Poland and Baltics know there’s great opportunities to skim off fortunes from the US aid (as there has been in Ukraine the last 8 years).

The US finance capitalists flooded into Ukraine after 2014 (enabled by Victoria Nuland–a former US hedge fund CEO who entered US government as an undersecretary of State for east Europe–who had herself appointed economic czar by Ukraine’s government right after the 2014 coup). On Nuland’s coattails, US capitalists descended on Ukraine and have in last 8 years deeply penetrated Ukraine’s economy. US military, advisers, trainers, field officers in turn followed. As did family members of several of the US elite (Bidens, Pelosi, et. al.) So the US is now deeply embedded in Ukraine’s economy and pulls a big string in its political and military decisions. Given this penetration, the US may allow Russia to chip off some eastern and southern provinces but it will never permit a defeat of Ukraine that will drive them out of the country altogether. The most likely outcome of the war therefore is some kind of partition of the country, likely along Russian speaking population lines in the east and south.

It’s interesting to watch the follow up debate emerging among US elites, that is now underway, to the recent NY Times editorially, which questioned whether a deeper and more direct conflict with Russia in Ukraine was worth US capitalism’s interests. A growing segment of US Capital and political elites are now publicly raising the former taboo question that a deeper and more direct conflict with Russia is not in US interests.

I suspect US capitalists increasingly now believe they have ‘won’ the economic war: they’ve been able to seize $300 billion of liquid assets of Russia in banks around the world; they’re going to seize hundreds of billions more of Russian physical assets; they’re driving Russia out of Europe’s economy opening lucrative long term further profit opportunities; the war has stopped climate investment alternatives in its tracks to the great satisfaction of US oil interests; energy and commodity shortages from sanctions that continue will mean profits for oil & other US industries from price hikes for some time to come now; US bankers will get their higher net interest income from rate hikes and will get a nice piece of the Europe merger and acquisition funding action; etc. etc.

US capital has ensured it will reap super windfall profits from the conflict. They may be ready to say that’s enough, let’s not ruin it all by going to direct war with Russia.

But it will be interesting to see which capitalist segment in US prevails: the neocons and political octogenarians like Biden, Pelosi, etc. who think they’re fighting the 1960s cold war with the USSR again—or the big capitalists who are willing to pocket their winnings to date and want to leave the betting table (Ukraine) in a kind of chaos and stasis (just like they left the middle east from Libya to Afghanistan).

With the exception perhaps of Vietnam, US imperialists have never fundamentally lost a war: Some wars of invasion they win outright (Panama, Grenada, Serbia, Libya, Iraq, Isis, etc.). If they don’t militarily prevail, they either leave the area in shambles (Afghanistan, Syria, Lebanon, Somalia) for decades to come so its no longer a threat or an economic opportunity; or they regroup a decade after war and offer them a trade carrot (e.g. Vietnam).

To answer your specific point about Brussels, I think Brussels/EU believes the US will follow up on its many (yet unknown) promises to make good what the EU loses from Russia’s European withdrawal. EU/UK capitalists see money to be made from the crisis now emerging, and in the eventual recovery as well. Yes it’s about wealth transfer, like 2008-10 (and EU’s double recession 2011-13). By the way, I agree we should think in terms of classes within the EU and US in analyzing ‘who benefits’ and how. Thinking just in terms of nations in conflict obfuscates what’s really going on at a class level within each of these nations or regions. Nations don’t go to war; capitalists and their political elites go to war.

I suspect you’re right about the capitalist economies of US, EU, North Asia being in deep trouble after Covid (which hasn’t ended by the way). The question of war can’t be separated from the shock of the Covid on the economies.

The 2008-15 crash left Neoliberal policies increasingly ineffective. It never naturally or fully recovered fully from that crash. That’s why post 2009 (and 2013 in EU) we saw the capitalist state in US, EU, Japan engage in massive income redistribution via tax and central bank QE/interest rate (free money to capitalists) policies. The US gave investors, corporations & wealthy speculators a $4.5 trillion tax cut starting in 2018. And that was after Bush & Obama had previously given them $11 trillion before 2018. The Fed also ensured bankers and investors $4 trillion in QE and low rates until 2017. All that liquidity flowing to investors fueled financial market speculation 2010-2019 that made capitalists even richer.

In short, the capitalist state not only bailed them out, it institutionalized the bailout without end after 2010. The free money and tax cuts just kept coming. Financial markets boomed the entire decade after 2010 while wage incomes stagnated and fell in real terms. In the US alone, stock buybacks and dividend payouts by just the Fortune 500 averaged $800 billion a year under Obama from 2011 to 2016. It then rose to $1.3T a year under Trump 2017-19. Now under Biden, in 2021 it was $1.5 trillion. And that’s just the Fortune 500.

Now that the stock markets are correcting here in 2022, wealthy US investors and institutionals are protecting their gains by parking $2 trillion in cash with the Fed (which will pay them 0.25% just to hold their cash). In other words, the capitalist state under late Neoliberalism has become a massive income redistribution machine, fueled by policies from both Congress and the Fed.

We should think of inflation as the indirect form of Austerity policy. No need to reverse the stimulus of Covid years March 2020-March 2021. Just cut off the social spending spigot before it was supposed to end (which Biden and Dems did last fall 2021). Make sure no new spending occurs (i.e. bury Build Back Better) which Biden-Pelosi (with the help of Manchin-Sinema) did. And let inflation in 2021-22 ‘take back’ the money income given to working classes and small businesses in the form of the checks, unemployment benefits, child care, grants, etc. during the crisis.

In my most recent Alternative Visions radio show I explained the actual ‘Anatomy of Inflation’. It starts with reopening of the US economy in summer 2021 and a relatively minor Demand inflation. But inflation only really takes off at end of summer 2021 due to supply chain (global and domestic) issues. Those real Supply issues were followed by largely fabricated claims of supply shortages by big monopolistic corporations. They either had no supply issues (oil corps, meat, bakery corps) or they engineered shortages themselves (most recent, baby formula crisis created by Abbot Labs, etc.).

After the legitimate and illegitimate supply causes of inflation, the war in Ukraine followed causing surging oil, gas, and various industrial metals and agricultural (wheat, cooking oils, fertilizer) prices. Even before the actual shortages appeared, global commodity futures speculators drove up the prices in anticipation of the supply problems.

Now, most recently, there’s new forces emerging to keep prices rising. First, there’s collapsing US productivity in general, that’s pushing up business unit labor costs everywhere, that will be passed on to consumers across industries. And soon this summer we’ll see inflationary expectations playing a greater role that will generate both consumer prices and business producer prices. It’s an inflation ‘perfect storm’ brewing that’s not likely to end soon.

And what’s the politicians’ and capitalists’ solution to the chronic inflation: have the Fed jack up interest rates at a record pace that will almost certainly mean recession soon. It’s 1981-82 recession all over again, except it won’t take interest rates of 18% levels that occurred in 1981-82. I predict current Fed monetary policy will provoke recession before benchmark 10 yr. Treasuries hit 5-6%, due to the many changes in the US and global capitalist economies that have occurred the last 40 years.

The 21st century capitalist economy is highly sensitive (negatively ‘elastic’ as economists like to say) to interest rate hikes. It doesn’t take much to throw the economy into contraction (and don’t forget US GDP first quarter 2022 this year has already contracted -1.4%). But the Fed and US capitalists have decided not to slow inflation by raising taxes. Nor will they cut defense spending which has already risen $54 billion for Ukraine and Biden’s Pentagon budget to rise another $85 billion. With social programs already gutted, it’s not likely more cuts there.

So the only inflation control game is the Fed and monetary policy.

The problem with the Fed as the only inflation control game in town is it means US elites have decided that destroying consumer Demand is the policy. When the problem is largely Supply and monopolistic price gouging and War sanctions! In other words, the decision has been made to take it out on the backs of the households and consumers Demand. That’s the strategy—which is not unlike what US capitalists under Reagan in 1981 decided to do, with the result a major recession.

This general economic scenario shows a capitalism in 21st century, and American economic empire leading it, running out of easy solutions. It’s a capitalism where its former ‘tools of economic stabilization’—i.e. fiscal and monetary policy—are no longer used for that purpose. Instead they are used to ensure that capitalist wealth is guaranteed, promoted as never before by the capitalist state.

War in Ukraine and US perpetual wars of 21st century should therefore be understood as an essential element of by which capitalist political elites and the capitalist state ensure wealth continues to redistribute and grow. As the Neoliberal capitalist state increasingly redistributes income to Capital by means of various fiscal and monetary policies, it also continues war promotion to enable the same. War is just another means of income redistribution, just like tax cuts for capitalists and free money from the central bank.

Capitalism is a cannibal. It’s a Moloch that has to eat its own children. Europe has decided it’s better to take a seat at the table with the American glutton than to become just another meal. So for now, Capitalism is trying to carve up its weak eastern neighbor, Russia. After that first course, it will eventually find some way to try to devour China, the main dish. The question is can it digest these larger meals? Smaller bites out of middle east, Latin American, and African countries are easier to digest. But these larger meals may force it to regurgitate.

We should see US empire’s prosecution of the proxy war in Ukraine as a meal in which US Capital has already well stuffed itself. Certain US capitalist sectors now want to leave the table with their economic bellies full. Others (neocons, Military Industrial Complex, some bankers) are not yet satiated. They want to continue to chomp down on larger helpings of Russia. But they just may try to take too large a bite and end up choking on it.

The US current prevailing strategy is what I call its ‘Brezezinski 2.0’ doctrine. That is, Zbigniew Brezezinski’s, national security adviser under Carter, formulated a strategy to drain Russia (then USSR) in Afghanistan in the 1980s in order to weaken it to a point it leads to economic and political instability. That strategy was to arm the Afghans to resist Russia with the then latest US weapons. It proved successful. By 1986 the USSR had to retreat and leave. Domestic political instability followed until USSR imploded in 1991.

The neocons see a possible repeat strategy in Ukraine. Hence the ‘2.0’. Democrat politicians today also like the idea since they believe (incorrectly) it will give them an issue in 2022 and 2024. They have no other message except to raise the bogeyman of Trump. They have failed miserably with the post-Covid economic recovery, with broken promises made during the election of 2020, with surging Inflation, with failure to enact immigration reform, deliver student debt forgiveness, police reform, and deepening social alienation occurring across wider segments of the US population today. Biden’s not the first politician to promote war in order to divert attention from domestic policy failures.

Jack Rasmus
May 24, 2022

In my latest Alternative Visions radio show I break down the various causes of US inflation and its evolution from the summer of 2021 when it emerged to the present (and coming months). False narratives by US politicians–inflation due to too much government relief spending in March 2021, due to ‘Putin’s war, or due to US households’ flush with savings and cash–are exposed for the economic ideology they represent. Why inflation will continue at high levels and even escalate this summer are explained. And why Fed rate hike policies now underway, designed to destroy Demand, won’t dampen inflation; nor lead to a ‘soft landing’ of the US and global economies.




Dr. Rasmus dissects the various causes of inflation in the US over the past year, explaining it is mostly Supply side driven and not consumer Demand. Following last spring 2021 reopening of the US economy, some price increases followed due to more wage in come as workers went back to work. That was a moderately rise, however. The big escalation of inflation began last September due to global and US domestic Supply chain problems which was followed by price gouging by monopolistic US corporations many of which had no supply issues (ex: bakery-cereal and meat packing companies, oil companies, etc.). In 2021 Supply was responsible for at least 3/4s of the inflation. Overlaid on these forces in 2022 were three additional causes: first, commodity inflation due to Ukraine war and Biden sanctions depressing supply of oil, gas, industrial metals, certain agricultural goods; second, rising unit labor costs by US businesses due mostly to collapsing US productivity (worst since 1947) passed through to prices; third, emerging inflationary expectations (the latter a Demand factor). To address this anatomy of inflation, the Fed is raising interest rates at a record pace, addressing Demand but unable to address Supply causes. Recession will follow (as in 19981-82). Rasmus further explains how the US exports both its inflation and recession to emerging market economies via a currency crisis now underway.