Daily Archives: September 21, 2022

I Don’t Know Who The Fed Is Working For, But It Ain’t You And Me

I’m no economist. But economics seems to be one of those fields that you can be trained in for years and years and still not know what the fuck is going on. Not even a savvy investment giant like Warren Buffett can tell which way the wind is blowing all the time. Economics is a guessing game, judging by the amount of divergent opinions one can help themselves to in the news on a daily basis.

So the field is open for a layperson like myself to learn the fundamentals. But even the “laws” of supply and demand elude people interested in the subject. Some people think that is the end of the discussion, that all economic activity comes down to that raw tension between those two concepts. Their relationship is definitely very much a thing and weighs hard on all economic discussions, but it is not the end of them. What I have learned so far is that there are several forms of market warp that transcends the simplicity of laissez- faire notions of how money moves.

Peoples’ memories and attention spans being shit as they are, they often don’t remember events that changed the face of history. Just for an easy example, Trumpers like to point out the price of gas when he was president as compared to what it was this summer while Biden presided. Now of course this is dumb on its face because of the easily understood fact that the president does not really control gas prices. There are things that can be done, like releasing oil from our strategic reserve, employing gas tax holidays, and diplomacy with oil-producing nations. But most of that will not bring significant results that people are clamoring for. Stupid people think that presidents are like CEOs, where everything that goes wrong on their shift is attributable to them. But there’s this little thing called current events, and a president would have to have a crystal ball to head them off. History has to run through the course of a presidency, and to truly understand the efficacy or failure of a presidency we must know what happened during it, looking at phenomena that haven’t got a thing to do with who sits in the Oval Office.

So anyway, why was gas so cheap during Trump? Well, let me get right to it. It’s the prime mover of every calamity we have had and are continuing to have.

COVID-19.

If you don’t understand what the epidemic did to the economy, you have shit for brains and should shut up on the subject of economics for the last three years or so.

We literally didn’t leave the house for a year and a half. Businesses were destroyed. Supply chains mangled. Workers laid off. Oil actually traded in the negative, which technically meant we were running out of places to put the oil that no one needed and were on the verge of giving it away. We were worried about how we were going to wipe our ass. It took Trump begging the Saudis to shut their taps off to keep American producers afloat.

An event like this only comes perhaps once a century. It changes everything, and sometimes it just doesn’t matter who is the unfortunate chump in office is when they do occur. Mind you, Trump’s response to COVID was as bad a response as could be imagined, first denying the danger for months and then hawking quack treatments for people who were encouraged to have vaccine hysteria.

By the time Biden entered office, America was back at play, footloose and fancy free. Mask restrictions were done away with, vaccine proof was no longer needed to do certain things and we were off to the races. Demand skyrocketed.

But supply did not. A good chunk of manufacturing is coming from China, who has a zero COVID policy and if they catch a whiff of a breakout they literally go on lockdown. This would and still is causing a crimp in our supply capabilities. Oil company investors, who had their profits pared down seriously by COVID, went on a wild greed spree this summer, refusing to up production to meet the demand, citing a labor shortage, drill parts shortage and the events in Russia and Ukraine. Some of that may have been true-but much of the rise in price in oil was partly attributable to stock buybacks and and insistence on not growing to maximize the barrel price.

So what happens when too much money is chasing too few goods because supply cannot meet demand?

Inflation. It’s as natural as a newborn. Now during COVID under Trump, we printed seven trillion dollars to keep the economy alive. Another two trillion was printed in the first months of the Biden administration. Now those seven trillion under Trump had no effect on inflation. The Fed kept rates at near zero, allowing cheap money to flow wherever it needed to. Once again, it is stupid people who don’t understand that debt is not tied to inflation in a sophisticated economy like ours. Had this been true, we’d be like Argentina since we’re already 23 trillion in the hole and debt to GDP is almost 100%. We absolutely had to borrow that money to just keep basic services going. Some of it went to bad places but on the whole it was necessary debt, which some nitwits cannot tell from bad debt. But anyway, America is taking risks and are back in society, buying what they want. But they’ve noticed big time that what they want is going up in price quite a bit.

What’s the real problem? Did we overdo quantitative easing? Or is this inflation just a function of low supply and high demand? Or do we have yet more greed coming from monopolistic elements within the economy? Either way, Fed Chairman Jerome Powell thinks he has the answer. He’s gearing up for several aggressive interest rate hikes to combat inflation. People I have been reading say he’s going to crash the economy if he keeps it up, and that may be his plan-which sounds insane for a society that just got let loose into the marketplace to buy, buy and buy. Yes, some tightening is probably necessary. Some. But not recession-causing tightening. Apparently Powell doesn’t think the market has the know how to heal itself, and is going to instead contract us into a manageable size, where wages are lower as well as prices. This is madness. COVID-19 warp has shit to do with monetary policy. Those trillions were on the books and they could have stayed there a bit more while we got on with business. Once again, incremental adjustments to the interest rates make sense, but not these ham fisted moves Powell is making. He’s not going to squeeze inflation out of the economy if he is not taking into account what is causing it.

It’s not the balance sheet, folks. It’s the bug. And if Jerome Powell thinks he’s doing us a favor by making the cost of of money expensive and halt this economy’s gains, he doesn’t understand the American consumer nor the pandemic. Give America a minute to actually be a free market. Or to be free, period.

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