Remember when progressives told you we could just keep spending like drunken sailors and that those who opposed their plans were just “selfish?” First, you got shortages, then you got inflation, and now you’re about to get millions of people intentionally pushed into unemployment to try to fix the mess they made.
That’s right. In a recent speech, Federal Reserve Chair Jerome Powell said that getting the inflation the government created under control was going to involve “some pain to households and businesses.” (I just love when they casually threaten us…)
What does this mean exactly? While they won’t exactly spell it out, a quick perusal of the policies they’re pushing paints the picture loud and clear: in order to stop inflation, they believe they must push a lot of people out of work.
The Federal Reserve has already deployed its favorite magic trick for bringing down inflation (interest hikes). But it’s not doing much. While they initially claimed to think a “soft landing” was possible for getting the economy under control, those dreams have gone out the window.
Raising interest rates increases the cost of borrowing money. Normally that would mean demand decreased as people in turn purchased fewer things. But, thanks to stimulus spending, increased unemployment benefits, and handouts for children during the pandemic, the middle class has a lot more in its bank account. That means people can afford to pay cash, and the interest rate hikes aren’t cooling demand like they usually would.
So, what else can they do to decrease demand? One option they’re considering: Put a lot of people out of work, forcing them to eat up their savings and put those dollars back into the economy.
According to everyone’s least favorite investment company, BlackRock, GDP needs to contract by 2% to cut inflation as quickly as the Fed is trying to. They estimate that would put around 3 million Americans out of work and raise the unemployment rate to 5.5%.
The Fed is concerned with persistent inflation, and rightfully so. We’ve already all lost at least one month’s salary to the increased prices this year. Long-term what that could spell is a drastic decrease in living standards as wages fail to keep up with inflation (which we’re already seeing) and people can no longer afford basic needs.
But on the other hand, pushing people out of work (where they definitely can’t afford basic needs) is a grotesque tool to use. Essentially, these 3 million people will be the sacrificial lambs to get inflation back under control.
Consensus has now moved to the view a recession is likely next yr. The avg recession involves a 3% point increase in unemployment. The most benign involved an extra 1.5 % unemployment. Fed forecast of 4.5 peak is looking implausible. 6 seems a better guess https://t.co/mt5rOQfjn7
— Lawrence H. Summers (@LHSummers) October 17, 2022
— Reuters (@Reuters) October 20, 2022
None of it had to be this way.
Never for a minute think the current chaos of our economy is naturally occurring. Nor is it an inherent part of a capitalist system. The real culprits here are the Federal Reserve, Congress spending like 10-year-old fat kids in a candy store, and the economically illiterate Keynesian school of economics that has progressives by the throat.
The bond collapse continues. It will only stop when bankruptcies and unemployment soar and the Fed aggressively intervenes. 10-yr yield rises to 5%?, 6%? 10%? Who knows? pic.twitter.com/HBMgtS58nh
— Alasdair Macleod (@MacleodFinance) October 21, 2022
When they tell you they can keep spending for whatever pet project they pick at the moment (student debt relief, “free” healthcare, government daycare), know that ultimately, inevitably, this is where it ends.
You’ll pay for it eventually. And some payments come with a bruising.