The Federal Reserve has tossed off its rose-colored glasses. It is now ratcheting up interest rates faster than expected but not as fast as inflation. Don’t expect the mythical “soft landing” government always promises but rarely delivers once the specter of inflation scares even the sleepiest of politicians and government officials.
Janet Yellen, inflation denier-in-chief at the U.S. Treasury, is conceding she might have been a tad wrong when she claimed inflation would all quickly pass. The stock market has wiped out its gains since Inauguration Day 2021. Retirees and savers are being routed on the economic battlefield, retreating into their bunker with what remains of their savings. Rents are up 4% and higher in desirable markets, smacking young people in the face. Inflation is at a 40-year high. And both the stock and bond markets are simultaneously in trouble, a true rarity. One can only hope we are not facing a Black Swan event. That is what economists call calamities that aren’t supposed to ever happen until they do.
Ludwig von Mises, the late economist of the Austrian School, summed up the issue neatly. “There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.”
MMT, Modern Monetary Theory, is the new euphemism for irresponsible credit expansion and all its evils. This is the pet program of the Left and its legion of egghead economists, who claim that neither government tax revenue (income) nor spending matters all that much. Spending can be safely managed by how you manage the money supply. It is working like a charm, right?
And if you can spend at will and taxes don’t matter all that much, why tax anyone? Once you insist revenues and expenses don’t have to match — even on the supply-side growth model favored by Reagan and Trump, the one the Left hates — what purpose do taxes even serve? Are they there to punish workers and savers? Or maybe to reward the government unions and gratify their legions of sidelined voters living under a welfare- rather than workfare-leaning regime. The bipartisan workfare ethos pioneered by President Bill Clinton and House Speaker Newt Gingrich decades ago is dying a slow death with today’s Washington spendocrats.
As for that great economic thinker Joe Biden, well, he put the frosting on the cake by claiming a) employment is way up — from when the CDC geniuses forced everyone to stay home. And b) spending is way down from last year! Just perhaps because Democrat Sens. Joe Manchin and Kyrsten Sinema helped defeat the $3 to 5 trillion in new Build Back Better stimulus spending. The White House said, “The cost of the Build Back Better Agenda is $0,” and added for good measure it “won’t add to our national deficit.” Just imagine the inflation rate if the president had been allowed to surpass the reckless spending spree of 2021? It does prove that Joe Biden will claim credit for anything positive, even the defeat of his own cockamamie plan!
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President Biden’s argument is like saying the number of students in school has skyrocketed after summer vacation or that after buying two new cars you couldn’t afford last year, you are an economic wizard for not buying a another new car you can’t afford this year.
Everyone knows people who think this way. Yes, they are lying to themselves. They are like that hapless guy who goes through life wondering why nothing ever works out for him. In this case, rather than trying to fix the problem, Team Biden wonders why nothing is working out for the entire country! You know the answer, so don’t let them lie to you.
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