A good friend who owns a major auto dealership in the Dallas area recently told me he typically has about 500 to 1,000 cars and trucks on his lot. Now, he has 15. That’s how severe the supply chain problem has become.
He said people are buying cars over the sticker price. You usually haggle down the price for a new car. Now, you haggle up the price! Welcome to Bidenflation.
But now, the Commerce Department has reported that the high-flying U.S. economy with a 6.5% growth rate for the first half of this year has crash-landed in the third quarter with an anemic rate of just 2% growth. Those lousy numbers predate the supply chain crisis that emerged in October.
At the start of the year, the Philadelphia Federal Reserve Bank predicted 7% growth. So, that’s quite a downgrade we are seeing.
Car sales, for example, are way down because of microchip shortages. The carmakers also don’t have the metals they need to make the cars. Don’t try to buy a used car, either. Those prices in many parts of the country are up by more than 20% — even for clunkers. Many grocery stores now have empty shelves of produce and vegetables.
It means we have slow growth while inflation has hit its highest level in more than a decade at 5.6%. In addition, consumer confidence in the economy has tumbled.
All of this is a bit reminiscent of the economy of the 1970s. Does anyone remember the term stagflation?
Those under the age of 40 probably don’t even know what that is, and they’ve certainly never experienced it upfront and personally.
Here’s the definition from Investopedia: Stagflation is characterized by slow economic growth while at the same time accompanied by rising prices (i.e., inflation).
Under Presidents Richard Nixon, Gerald Ford, and Jimmy Carter, years of persistently high inflation triggered a surge in unemployment. That then led to the term “misery index.” The sum of the inflation rate and the unemployment rate. It exceeded 18% in Carter’s last year in office.
And then it was, “So long, Jimmy.” With the economy sagging, Carter lost a landslide election to Ronald Reagan.
The lesson here is straightforward: The witches’ brew of slow growth and higher prices is the ultimate curse for politicians.
Inflation, which had been relatively tame for 40 years, has been a cascading problem in Biden’s first 10 months in office. The consumer price index suddenly galloped from less than 2% in the Trump years to 5% and 6% in the past four months. The cross-your-fingers hope by the Federal Reserve Board and the White House that the sticker-price rises at the grocery store, the restaurant, and the gas station were only “transitory” have melted away like an ice cream cone on an August afternoon. Inflation is accelerating, and Jack Dorsey, the CEO of Twitter, predicts hyperinflation.
Let’s hope he’s wrong, but there is no plan in Washington or by the Fed to slow it down.
In fairness to Biden, some of the steep rises in prices were bound to happen due to the depressed prices in 2020. As consumer spending popped like a cork from a champagne bottle when lockdowns ended and the economy returned to normal, there was a natural demand response to reopening.
But nearly every Biden policy has made inflation and the economic slowdown worse. The absurd $1.9 trillion blue-state bailout bill passed in March marinated the economy with hundred dollar bills as if dropping like confetti from helicopters. According to Casey Mulligan at the University of Chicago, the expansion of welfare programs such as food stamps and unemployment benefits (not tied to working) is paying people up to $75,000 for not working a single hour in many states.
Big surprise that the labor force participation rate had shrunk and companies had 11 million jobs they couldn’t fill. Last month, nearly 200,000 people dropped out of the job market.
No wonder that the Job Creators Network says that small-business optimism has seldom been lower than today. When you treat profitable companies like villains, the owners go into protection mode.
Why invest when the politicians in Washington are threatening to tax away your earnings in the name of paying your “fair share?” Businesses that make profits are now demonized as enemies of the people in this new liberal anti-growth crusade. They keep forgetting that without employers, there are no jobs.
The income redistributionists who seem to be driving the Democratic Party agenda will soon learn that their pixie dust economic doctrine called modern monetary theory, which posits that Congress can spend and borrow ad infinitum, is a giant hoax. When the political class begins to plunder company profits indiscriminately in the name of “fairness,” the profits and the businesses start to disappear.
So, if Congress and the White House are afraid of the forces of stagflation, as they should be, what should they do?
The first and most urgent step to contain stagnation is to defeat Biden’s $4 trillion spend, tax, borrow, and print money scheme.
This week’s GDP report is a five-alarm siren warning that the Biden debt binge has to stop now. Hopefully, temporary stagflation doesn’t turn into runaway stagflation.
U.S. Inflation Hit 30-Year High in October as Consumer Prices Jump 6.2%
Core index was up 4.6% as pandemic-related supply shortages, strong consumer demand continue
U.S. inflation hit a three-decade high in October, delivering widespread and sizable price increases to households for everything from groceries to cars due to persistent supply shortages and strong consumer demand.
The Labor Department said the consumer-price index—which measures what consumers pay for goods and services—increased in October by 6.2% from a year ago. That was the fastest 12-month pace since 1990 and the fifth straight month of inflation above 5%.
The core price index, which excludes the often-volatile categories of food and energy, climbed 4.6% in October from a year earlier, higher than September’s 4% rise and the largest increase since 1991.Consumer-price index, percent change froma year earlier.
On a monthly basis, the CPI increased a seasonally adjusted 0.9% in October from the prior month, a sharp acceleration from September’s 0.4% rise and the same as June’s 0.9% pace.
Price increases were broad-based, with higher costs for new and used autos, gasoline and other energy costs, furniture, rent and medical care, the Labor Department said. Food prices for both groceries and dining out rose by the most in decades. Prices fell for airline fares and alcohol.
U.S. stocks fell and bond prices rose as investors digested the impact of price pressure on the global economy.
Persistently higher inflation—triggered by a faster-than-anticipated but uneven economic recovery, trillions of dollars in pandemic-related government stimulus and other factors—is hitting consumers’ wallets. At the same time, a rebounding economy and healthy household balance sheets are both stoking demand and cushioning price increases.
The inflation surge is complicating the Federal Reserve’s strategy for unwinding easy-money policies the central bank imposed early in the pandemic. It has also emerged as a political factor affecting the Biden administration’s economic agenda.
Prices climbed the fastest in the South, a part of the country that reopened earlier in the pandemic but was hit relatively harder by the Delta variant of Covid-19. Prices were also up more in the Midwest than in the Northeast and West.
Americans have never been in so much debt
American households are carrying record amounts of debt as home and auto prices surge, Covid infections continue to fall and people get out their credit cards again.Between July and September, US household debt climbed to a new record of $15.24 trillion, the Federal Reserve Bank of New York said Tuesday.
It was an increase of 1.9%, or $286 billion, from the second quarter of the year.
“As pandemic relief efforts wind down, we are beginning to see the reversal of some of the credit card balance trends seen during the pandemic,” such as lower spending in favor of paying down debt balances, said Donghoon Lee, research officer at the New York Fed.
Now that the stimulus sugar rush has worn off, consumers are going back to their old ways of spending with their credit cards. Credit card balances rose by $17 billion, just as they had during the second quarter. But they’re still $123 bullion lower than at the end of 2019 before the pandemic hit.
Mortgages, which are the largest component of household debt, rose by $230 billion last quarter and totaled $10.67 trillion.Auto loans and student loan balances also increased, rising by $28 billion and $14 billion, respectively.
Even though credit card debt has yet to get back to its pre-pandemic level, total debt is already $1.1 trillion higher than at the end of 2019.
High spending spurred by even higher inflation
Americans are spending big at the moment. Economists’ explanation is, for the most part, “because they can”.
With the labor market recovery chugging along and the worker shortage driving up wages, people’s wallets are getting filled ahead of the holidays.
That’s a good thing, because everything is getting more expensive.
Inflation is sitting at multi-year highs thanks to supply chain disruptions that have increased the costs of shipping and raw materials. At the same time, consumer demand is also going through the roof.
The latest inflation data from early Tuesday showed prices producers receive for their products rose 0.6% in October, adjusted for seasonal swings, or 8.6% over the preceding 12-month period. Much of the increase was due to higher energy costs.
Businesses can only absorb so much of the increase in prices before passing the higher costs down to end-consumers.
Stripping out energy and food prices, as well as trade services, the producer price index rose a seasonally adjusted 0.4% last month, or 6.2% over the 12-month period.
The price index tracking intermediate demand — that’s goods and services sold to businesses — for processed goods jumped 2.1%, its biggest advance since May, mostly driven by higher energy costs.
Over the 12-month period ended October, the index has climbed 25.4%, the biggest increase since January 1975.Consumer price inflation, which tracks prices paid for food, housing and the like in October is due Wednesday morning.
IRS reporting requirement: Why crypto and NFT fans are worried about the infrastructure bill
Industry groups are concerned about a ‘digital assets’ provision that may require reporting cryptocurrency transactions to the Internal Revenue Service.
The $1.2 trillion infrastructure bill, which is on its way to President Biden’s desk, includes provisions to fund everything from new roads to improved broadband connections, but it also includes tax reporting provisions that people and organizations in the cryptocurrency and NFT worlds are concerned could stifle transactions.
Existing tax law, in a section of the U.S. tax code called 6050I, requires that people who receive more than $10,000 in cash and equivalents (like cashier’s checks and money orders) in many business transactions file a report with the Internal Revenue Service (IRS), including details about who paid them—such as names and Social Security numbers—or potentially face felony charges. The new law expands the definition of cash to include “digital assets” and comes as governments around the world grapple with the rapid rise of crypto and the potential for its use in money laundering. Critics worry the new provision could force participants in crypto transactions and NFT trades, which are often anonymous, to have to disclose information about the people they’re doing business with, which they simply might not have.
“Miners, stakers, lenders, decentralized application and marketplace users, traders, businesses, and individuals are all at risk of being subject to this reporting requirement, even though in most situations the person or entity in receipt is not in the position to report the required information,” warned attorney Abraham Sutherland, an adjunct professor at the University of Virginia School of Law and advisor to the Proof of Stake Alliance, an industry group, in a September report.
Decentralized finance, or defi, operations, where automated smart contracts essentially provide financial services, could also be affected by the provision, warn people in the industry.
“This 6050I provision in the infrastructure bill seems like a disaster if I understand it,” said Coinbase CEO Brian Armstrong in a tweet. “Criminal felony statute that could freeze a lot of healthy crypto behavior (like Defi).”
The new law also contains a provision that would expand the definition of “broker” under the law to include cryptocurrency brokers, which some in the industry—including a group called the Crypto Council for Innovation—have feared would rope in coin miners and developers involved in building and maintaining crypto systems. Brokers are also required to report many transactions to the IRS.
Bloomberg reported earlier this year that the Treasury Department, which is ultimately responsible for putting out regulations saying how the new provisions will actually work in practice, is likely to exempt organizations and people that aren’t brokers in the usual sense. Since getting the law itself amended seems difficult with a fiercely divided Congress, it’s likely that the Treasury Department will see furious lobbying by the crypto industry to make sure it doesn’t interfere too much with their operations.