The Economy Is Stuck Between a Rock and a Hard Place With Nowhere Good to Go

The insanity of the COVID-19 shutdowns was a gift that just keeps giving. No one should have been shocked to discover that throwing people out of work en masse (Mistake #1) crashes economies. But Democrats were able to ride the chaos into office, and they used their Washington power to hand out grants and cheap loans willy-nilly, “rescuing” us by flooding the economy with extra trillions of dollars unanchored to anything of any particular value (Mistake #2). No one should have been shocked to see the rampant inflation that ensued and still torments all but the very wealthy today.

Traditionally, the Federal Reserve System raises interest rates to tame inflation by tightening the money supply back up. The downside is that this move also suppresses growth and can sometimes tip an already weak economy into a recession. The dream is always to achieve a “soft landing” after a major economic upset, in which inflation comes down without the higher rates crushing the GDP. But most of the time, this remains just a dream. And that is proving to be the case now.

For one thing, employment levels have yet to return to pre-shutdown levels. “President” Biden can brag about low unemployment all he wants, but the truth is that fewer working-age people bother to work than before — just 62.5%. This chart from the U.S. Bureau of Labor Statistics tells the story:

The implacable rate-raising by the Fed has prevented businesses from investing and growing. Coupled with persistent inflation, some of them even have trouble making payroll. Steadily climbing rates also played a role in the bank collapse rollercoaster we’ve been riding since last week. In a panic to prevent the dominoes from falling on its watch, the administration turned to its favorite cure-all: throwing money at the problem. (Yes, even though inflation is still killing us, and yes, those are red alert klaxons you hear going off.)

Over the weekend, the Fed whipped up the Bank Term Funding Program (BTFP) to offer a “backstop” — a guarantee of liquidity to banks cast into insolvency by the yield inversion caused by the rate hikes, so they could pay out deposits as needed. Big Government also unilaterally decided to bail out all of failed Silicon Valley Bank and Signature Bank’s deposits, above and beyond the $250,000 guaranteed by FDIC, claiming a systemic risk exception.

Government loans and outright giveaways have been a thing since the devastating COVID-19 shutdown and the Democrat takeover of the federal government. But not only do these policies sandbag normal Americans with historic inflation, but they also make it hard for the Fed to raise rates in a meaningful way while they’re simultaneously devaluing cash.

(As an aside, I must note that almost all of these bailouts somehow always seem to benefit the progressive, white-collar class — college debt carriers, Silicon Valley bigwigs, venture capitalists, and their celebrity peers like Harry and Meghan, who deposit their Netflix millions alongside them.)

In a Thursday morning email, Bloomberg’s Joe Weisenthal summed up the wretched position in which we now find ourselves:

The events of the last week have put central banks into a quandary. Inflation is high, and they’ve been indicating plans to continue with sustained rate hikes. But now financial stability is under threat in the US and Europe.

So obviously the Fed (which has a decision next week) and the ECB (which has a decision later this morning) have to figure out which path is riskier. Pause, and risk inflation gathering further steam? Or continue to hike, and risk a widening meltdown?

Of course, we wouldn’t be in this position if dictatorial Leftist loons hadn’t shut down our economy with one hand and flung wads of cash into the air with the other. But here we are — addicted to federal over-management and bailouts, damned if we do raise rates and damned if we don’t.

With nowhere good to go, it’s no wonder these people are casting a desperate eye on the possibility of a good, old-fashioned war.