the spreading insistence by the center-left that the war on inflation was already won
If you average the monthly consumer price index during all of 2023, and compare this to the average during all of 2022, consumer inflation was 4.1% during 2023. That was the third highest annual price increase of the past 30 years, the most inflation except for 2022 (8.0%) and 2021 (4.7%). The price increases of the past three years were the biggest of the past 30 years. Most US residents either weren't yet born or weren't yet adults the last time we saw inflation like this.
But if you read the mainstream center-left journalists I read, who as a group would implicitly prefer Biden's re-election to Trump's, we've already conquered inflation and have nothing to worry about and the Fed should cut interest rates this year in celebration. The members of the Fed themselves predict that short-term interest rates (which they control) have peaked and will decline from 5.4% at the end of 2023 to 4.6% at the end of 2024. And then 3.6% at the end of 2025, and 2.9% at the end of 2026. They also predict that GDP growth will continue between 1-2% per year, and that unemployment will remain around 4%. A Goldilocks economy stretching ahead for years :-) What experts we have managing our economy for us.
Perhaps inflation will continue to decrease from 2022's purse-draining level during 2024, but the widespread urgency for declaring victory before victory has actually arrived surprises me. I see it as the product of pro-Biden bias, trying to sweep the past three years of high inflation under the rug -- all gone now, all better now, yay! Please don't blame the people who were in charge.
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Part of the reason why prices rose less quickly last year, is that the world's largest economies -- China, EU, US -- are already experiencing a manufacturing recession. This partial recession has reduced global demand for raw materials, so oil prices were down 18% last year, instead of up 40% during 2022. Commodity prices in general were down 3.3% in terms of US Dollars last year. You could say we've solved the post-COVID supply chain problems, but part of the solution has been lower demand for raw materials from the global manufacturing sector. People all over the world have been making a bit less of the physically manufactured stuff, because demand is down.
Higher global interest rates probably contributed to this manufacturing recession, which means the higher interest rates are "working" as intended -- slowing the growth of the global economy and so slowing demand and so reducing price pressures.
But we still aren't all the way back down to 2% inflation. And getting the rest of the way there may require even more of a global slowdown in both goods and services. It is still possible our economic managers have already overdone the high interest rates and we'll enter a full recession during 2024. Despite their Goldilocks predictions of their own future performance.
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US GDP growth during 2023 was 2.5% after adjusting for inflation. This is solid growth of the type we saw during the 2010s before the pandemic, under both Obama and Trump. Unemployment remains under 4%. The stock market is back to hitting new highs, as are housing prices. Even stupid Bitcoin is up 75% from a year ago. If it weren't for the high inflation of the past three years, US voters would probably be feeling OK about the economy and Biden's approval numbers wouldn't be so low.
So the pro-Biden journalists would love for everybody to please forget about the inflation. They'd also love for the Fed to cut interest rates between now and November to juice the labor market, stock market, and housing prices. And we can all forget about those pesky predictions of a recession :-)
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Last night T was mocking me for having predicted a recession last year. I always did say that the recession would start by June 2024, and yes I figured it would begin sooner based on historical averages, but ... short-term interest rates are STILL higher than long-term interest rates, and have been for 13 months now, and would remain so even if the Fed cut rates later this year by the amount they predict. Eventually this interest rate inversion will cause a recession by steadily sucking cash out of the economy. The 1990 recession took 18 months to show up, and two quarters before it showed up GDP was growing faster than it is now, so you really can't predict an upcoming recession based on current GDP & unemployment statistics. We'll see whether T is still mocking me in October, or whether he'll be saying stuff like, "A few bad economic statistics isn't a recession!"
But recessions have always been temporary anyway. Unemployment spikes and markets crash and voters kick out the bums, but then we resume our seemingly limitless exponential growth. Does a recession matter if you still kept your own job? And people get laid off during growth periods, typically hundreds of thousands of people get laid off every week. Getting laid off is certainly a personal recession. And we may not live to see another pandemic recession in which millions of people were getting laid off each week. That was a once-per-lifetime sort of economic calamity.
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The recent inflation was absolutely caused by the Fed and Congress pumping several trillions of freshly created USD into the economy via all kinds of aid programs, with no effort to pay for the programs with higher taxes. All those pumps have been turned off now, and with higher interest rates the inflation will subside, and is subsiding. But we can't go back to the consumer price level of 2020, not without causing something like the Great Depression. Once you've printed trillions of new dollars, you have to let the economy adjust to a new price level. Trying to remove all of that new cash would create a financial crisis.
Back when we flooded the world with new cash to pay for WWI, the major central bankers tried to suck all that cash back out of the economy, and ended up causing the Great Depression. We seemed to learn our lesson after WWII -- we didn't try to go back to prewar price levels, but instead stabilized prices at their new higher level.
Stabilizing prices after WWII nevertheless required recessions, beginning in 1948, then again in 1953, 1957, and 1960. Every three to five years. Once prices have been stabilized, recessions become much more rare. We've only had four recessions since 1982, and one of those was caused by the pandemic. So history would suggest the amount of cash dumped on the economy during the pandemic could require a series of more frequent recessions to resolve. But who really knows. The people in charge say everything is great, and the stock, housing, and crypto markets agree. If you'd just forget about the past three years of high inflation and look forward to a future of endlessly steady growth, we'll all be fine.
But if you read the mainstream center-left journalists I read, who as a group would implicitly prefer Biden's re-election to Trump's, we've already conquered inflation and have nothing to worry about and the Fed should cut interest rates this year in celebration. The members of the Fed themselves predict that short-term interest rates (which they control) have peaked and will decline from 5.4% at the end of 2023 to 4.6% at the end of 2024. And then 3.6% at the end of 2025, and 2.9% at the end of 2026. They also predict that GDP growth will continue between 1-2% per year, and that unemployment will remain around 4%. A Goldilocks economy stretching ahead for years :-) What experts we have managing our economy for us.
Perhaps inflation will continue to decrease from 2022's purse-draining level during 2024, but the widespread urgency for declaring victory before victory has actually arrived surprises me. I see it as the product of pro-Biden bias, trying to sweep the past three years of high inflation under the rug -- all gone now, all better now, yay! Please don't blame the people who were in charge.
-----
Part of the reason why prices rose less quickly last year, is that the world's largest economies -- China, EU, US -- are already experiencing a manufacturing recession. This partial recession has reduced global demand for raw materials, so oil prices were down 18% last year, instead of up 40% during 2022. Commodity prices in general were down 3.3% in terms of US Dollars last year. You could say we've solved the post-COVID supply chain problems, but part of the solution has been lower demand for raw materials from the global manufacturing sector. People all over the world have been making a bit less of the physically manufactured stuff, because demand is down.
Higher global interest rates probably contributed to this manufacturing recession, which means the higher interest rates are "working" as intended -- slowing the growth of the global economy and so slowing demand and so reducing price pressures.
But we still aren't all the way back down to 2% inflation. And getting the rest of the way there may require even more of a global slowdown in both goods and services. It is still possible our economic managers have already overdone the high interest rates and we'll enter a full recession during 2024. Despite their Goldilocks predictions of their own future performance.
-----
US GDP growth during 2023 was 2.5% after adjusting for inflation. This is solid growth of the type we saw during the 2010s before the pandemic, under both Obama and Trump. Unemployment remains under 4%. The stock market is back to hitting new highs, as are housing prices. Even stupid Bitcoin is up 75% from a year ago. If it weren't for the high inflation of the past three years, US voters would probably be feeling OK about the economy and Biden's approval numbers wouldn't be so low.
So the pro-Biden journalists would love for everybody to please forget about the inflation. They'd also love for the Fed to cut interest rates between now and November to juice the labor market, stock market, and housing prices. And we can all forget about those pesky predictions of a recession :-)
-----
Last night T was mocking me for having predicted a recession last year. I always did say that the recession would start by June 2024, and yes I figured it would begin sooner based on historical averages, but ... short-term interest rates are STILL higher than long-term interest rates, and have been for 13 months now, and would remain so even if the Fed cut rates later this year by the amount they predict. Eventually this interest rate inversion will cause a recession by steadily sucking cash out of the economy. The 1990 recession took 18 months to show up, and two quarters before it showed up GDP was growing faster than it is now, so you really can't predict an upcoming recession based on current GDP & unemployment statistics. We'll see whether T is still mocking me in October, or whether he'll be saying stuff like, "A few bad economic statistics isn't a recession!"
But recessions have always been temporary anyway. Unemployment spikes and markets crash and voters kick out the bums, but then we resume our seemingly limitless exponential growth. Does a recession matter if you still kept your own job? And people get laid off during growth periods, typically hundreds of thousands of people get laid off every week. Getting laid off is certainly a personal recession. And we may not live to see another pandemic recession in which millions of people were getting laid off each week. That was a once-per-lifetime sort of economic calamity.
-----
The recent inflation was absolutely caused by the Fed and Congress pumping several trillions of freshly created USD into the economy via all kinds of aid programs, with no effort to pay for the programs with higher taxes. All those pumps have been turned off now, and with higher interest rates the inflation will subside, and is subsiding. But we can't go back to the consumer price level of 2020, not without causing something like the Great Depression. Once you've printed trillions of new dollars, you have to let the economy adjust to a new price level. Trying to remove all of that new cash would create a financial crisis.
Back when we flooded the world with new cash to pay for WWI, the major central bankers tried to suck all that cash back out of the economy, and ended up causing the Great Depression. We seemed to learn our lesson after WWII -- we didn't try to go back to prewar price levels, but instead stabilized prices at their new higher level.
Stabilizing prices after WWII nevertheless required recessions, beginning in 1948, then again in 1953, 1957, and 1960. Every three to five years. Once prices have been stabilized, recessions become much more rare. We've only had four recessions since 1982, and one of those was caused by the pandemic. So history would suggest the amount of cash dumped on the economy during the pandemic could require a series of more frequent recessions to resolve. But who really knows. The people in charge say everything is great, and the stock, housing, and crypto markets agree. If you'd just forget about the past three years of high inflation and look forward to a future of endlessly steady growth, we'll all be fine.