Joe Biden should be thinking right now, “If you break it, you own it,” but he isn’t.
Yes, it’s implausible that the president, who has earned the moniker “Sleepy Joe,” has enough self-awareness to own his involvement in fueling the US economy’s precarious position, which is currently experiencing a 40-year high of 7.9% (and rising) inflation.
The trouble for Biden is that inflation is only going to become worse, according to every Wall Street CEO I speak with, no matter how much he blames the Russians for increasing costs on everything from gasoline to groceries. That is, unless Sleepy Joe wakes up and reverses his strange energy policies, which have rendered the United States reliant on despots from Russia to Venezuela. We still rely on oil and gas as the lifeblood of our economy, no matter how hard environmentalists and their lackeys in the White House push for a zero-carbon footprint.
Inflation is a form of theft. It robs money mostly from the poor, working, and middle classes in the United States. Joe Biden, on the other hand, fueled it with irrational fiscal measures, such as continuing to pay people not to work when the economy needed supply to meet surging demand post-COVID.
And he enlisted the help of Fed Chair Jerome Powell, who continued to print money long after COVID had ceased to represent an existential threat to the economy. Even before Russia invaded Ukraine, this established the stage for the present inflation cycle.
Biden’s energy policies also shackled oil producers to the point where gas prices a crucial component of the consumer price index were growing before the Ukraine invasion compelled Biden to impose an embargo on Russian oil and gas, putting $150 a barrel oil and $8 a gallon gas in the near future.
So don’t be fooled by Sleepy Joe’s excuses; he’s now blaming oil firms for not following through on drilling licenses while ignoring other roadblocks to exploration and drilling.
Another blather from his camp: that increasing US oil supplies will take a year or more to reach markets and will have little impact on prices.
Sorry, but oil is priced in the futures market, and more future supply will keep prices from spiraling much higher, and may even bring them down.
There is a way out for Biden: stop pandering to the left and reclaim domestic energy independence. Someone needs to wake him up to the fact that inflation isn’t going away, and Americans will eventually hold him responsible.
RELATED: Inflation: Gas prices will get even higher
Inflation is defined as a rise in the price of goods and services in an economy over time. When there is too much money chasing too few products, inflation occurs. After the dot-com bubble burst in the early 2000s, the Federal Reserve kept interest rates low to try to boost the economy. More people borrowed money and spent it on products and services as a result of this. Prices will rise when there is a greater demand for goods and services than what is available, as businesses try to earn a profit. Increases in the cost of manufacturing, such as rising fuel prices or labor, can also produce inflation.
There are various reasons why inflation may occur in 2022. The first reason is that since Russia’s invasion of Ukraine, oil prices have risen dramatically. As a result, petrol and other transportation costs have increased. Furthermore, in order to stimulate the economy, the Fed has kept interest rates low. As a result, more people are borrowing and spending money, contributing to inflation. Finally, wages have been increasing in recent years, putting upward pressure on pricing.
When there is inflation, who benefits?
Inflation Benefits Whom? While inflation provides minimal benefit to consumers, it can provide a boost to investors who hold assets in inflation-affected countries. If energy costs rise, for example, investors who own stock in energy businesses may see their stock values climb as well.
Is inflation a sign of a failing economy?
- Inflation, according to economists, occurs when the supply of money exceeds the demand for it.
- When inflation helps to raise consumer demand and consumption, which drives economic growth, it is considered as a positive.
- Some people believe inflation is necessary to prevent deflation, while others say it is a drag on the economy.
- Some inflation, according to John Maynard Keynes, helps to avoid the Paradox of Thrift, or postponed consumption.
What is the source of this inflation?
They claim supply chain challenges, growing demand, production costs, and large swathes of relief funding all have a part, although politicians tends to blame the supply chain or the $1.9 trillion American Rescue Plan Act of 2021 as the main reasons.
A more apolitical perspective would say that everyone has a role to play in reducing the amount of distance a dollar can travel.
“There’s a convergence of elements it’s both,” said David Wessel, head of the Brookings Institution’s Hutchins Center on Fiscal and Monetary Policy. “There are several factors that have driven up demand and prevented supply from responding appropriately, resulting in inflation.”
What will be the CPI in 2021?
The Consumer Price Index for All Urban Consumers (CPI-U) increased 7.5 percent from January 2021 to January 2022. Since the 12-month period ending in February 1982, this is the greatest 12-month gain. Food costs have risen 7.0 percent in the last year, while energy costs have risen 27.0 percent.
Who is the most affected by inflation?
According to a new research released Monday by the Joint Economic Committee Republicans, American consumers are dealing with the highest inflation rate in more than three decades, and the rise in the price of basic products is disproportionately harming low-income people.
Higher inflation, which erodes individual purchasing power, is especially devastating to low- and middle-income Americans, according to the study. According to studies from the Federal Reserve Banks of Cleveland and New York, inflation affects impoverished people’s lifetime spending opportunities more than their wealthier counterparts, owing to rising gasoline prices.
“Inflation affects the quality of life for poor Americans, and rising gas prices raise the cost of living for poor Americans living in rural regions far more than for affluent Americans,” according to the JEC report.
What is creating 2021 inflation?
As fractured supply chains combined with increased consumer demand for secondhand vehicles and construction materials, 2021 saw the fastest annual price rise since the early 1980s.
When inflation occurs, who suffers the most?
Unexpected inflation hurts lenders since the money they are paid back has less purchasing power than the money they lent out. Unexpected inflation benefits borrowers since the money they repay is worth less than the money they borrowed.
What happens if inflation becomes too high?
If inflation continues to rise over an extended period of time, economists refer to this as hyperinflation. Expectations that prices will continue to rise fuel inflation, which lowers the real worth of each dollar in your wallet.
Spiraling prices can lead to a currency’s value collapsing in the most extreme instances imagine Zimbabwe in the late 2000s. People will want to spend any money they have as soon as possible, fearing that prices may rise, even if only temporarily.
Although the United States is far from this situation, central banks such as the Federal Reserve want to prevent it at all costs, so they normally intervene to attempt to curb inflation before it spirals out of control.
The issue is that the primary means of doing so is by rising interest rates, which slows the economy. If the Fed is compelled to raise interest rates too quickly, it might trigger a recession and increase unemployment, as happened in the United States in the early 1980s, when inflation was at its peak. Then-Fed head Paul Volcker was successful in bringing inflation down from a high of over 14% in 1980, but at the expense of double-digit unemployment rates.
Americans aren’t experiencing inflation anywhere near that level yet, but Jerome Powell, the Fed’s current chairman, is almost likely thinking about how to keep the country from getting there.
The Conversation has given permission to reprint this article under a Creative Commons license. Read the full article here.
Photo credit for the banner image:
Prices for used cars and trucks are up 31% year over year. David Zalubowski/AP Photo
Is hyperinflation linked to a downturn?
Recessions aren’t always caused by inflation. High interest rates, a loss of confidence, a decrease in bank lending, and a decrease in investment are all common causes of recessions. Cost-push inflation, on the other hand, may contribute to a recession, particularly if inflation exceeds nominal wage growth.
- In 2008, for example, inflation was higher than nominal wages (resulting in a drop in real earnings), resulting in fewer consumer spending and contributing to the 2008 recession.
- It’s also feasible that inflation will produce a recession in the long run. If economic growth is too high, it can lead to increased inflation and unsustainable growth, resulting in a ‘boom and bust’ economic cycle. To put it another way, inflationary growth is frequently followed by a downturn.
- In addition, if inflation becomes too high, the Central Bank and/or the government may respond by tightening monetary and fiscal policies. This lowers inflation while simultaneously lowering aggregate demand and slowing economic development. As a result, initiatives aimed at lowering inflation are frequently the cause of a recession.
Cost-Push Inflation and Recession
Consumers will perceive a decrease in disposable income if commodity prices rise rapidly (aggregate supply will shift to the left). As a result of the compression on living standards, growth and aggregate demand may suffer. Firms will also be confronted with growing transportation costs, and they may respond by reducing investment. Another issue that could push the economy into recession is this.
The tripling of oil prices in 1974 was undoubtedly one element in the UK’s short-lived but devastating recession.
Recession
Consumer spending fell in 2008 as a result of rising oil costs, which was one factor. Cost-push inflation also pushed Central Banks to keep interest rates higher than they should have been, which may have contributed to the drop in aggregate demand.
In 2008, inflation outpaced nominal pay growth, resulting in a drop in real wages and contributing to the recession.
Cost-push inflation, on the other hand, was not the primary driver of the 2008-11 recession. The following were more significant elements in the economy’s descent into recession:
- Credit crunch – Credit market booms and busts resulted in a lack of money and, as a result, less investment.
- Falling house prices decreased wealth and consumer spending are caused by falling house prices.
- Loss of confidence – bank failures, stock market crashes, and declining housing values have all altered consumer and company expectations, causing people to conserve rather than spend.
Boom and Bust Cycles
The United Kingdom enjoyed an economic boom in the late 1980s, with growth exceeding the long-run trend rate. Inflation rose to 10% as a result of this.
The boom, however, eventually ran out of steam. In addition, the government determined that it needed to combat the 10% inflation rate, therefore it pursued a tight monetary policy (high-interest rates). This rise in interest rates (coupled with a strong exchange rate, the UK was in the ERM) resulted in a drop in aggregate demand and a recession.
Inflation does not mean demand falls
It would be a blunder to simply sa.- Inflation means that prices rise, and individuals can no longer afford goods. As a result, demand diminishes, and we have a recession. Students at the A level frequently write this, however the analysis is at best incomplete. Inflation is more likely to be induced by increased demand.
- The significant increase in consumer spending generated inflation in the 1980s. Efforts to lower the inflation rate precipitated the recession.
- During the 1981 recession, the scenario was similar. The Conservatives were determined to bring down the high inflation rates in the United Kingdom in the late 1970s. They were successful in lowering inflation by following monetarist policies, although this resulted in a recession.