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Joe Biden is extremely confused inflation. Not a joke, as the non-funny president so often (and strangely) says.
At a recent CNN City Hall, President Biden fired again rising prices as a temporary hiccup in his otherwise glorious recovery plan that revives the notion that the wave is temporary and not a threat to the economy.
More astonishingly, he again claimed it Democratsproposals to spend trillions more on new rights and large disbursements to special interest groups such as teachers’ associations will actually lower prices.
His claims, he said, are backed by all “serious” economists.
How can we possibly challenge all this? With conviction.
Let’s start with the notion that no serious practitioners are worried about inflation. Earlier this month, Kristalina Georgieva, head of the International Monetary Fund, posted this on the institution’s blog: “While further fiscal support in some major advanced economies, including the US, would benefit growth more broadly, it could also add further inflation to inflationary pressures. ”
By “additional fiscal support,” she meant Democrats’ ruthless $ 3.5 trillion that they threaten to go with zero Republican votes.
Georgieva joins St. Louis Fed President James Bullard, who has repeatedly warned that inflation may prove more sustainable than expected. He’s also a pretty serious guy.
At City Hall, Biden singled out one of the most critical critics of the Democrats’ big spending plans, saying “I know no one – including Larry Summers, who is one of my friends who is worried about inflation – suggests there are any long-term marchers. here, if we do the things we need to do. ”
Summers, a former finance minister, has repeatedly warned that “overheating and not excessive laxity are the prevailing short-term risks to the economy”; the jump in prices last month – the largest in 13 years, has only strengthened his convictions.
In fact, there are many people who are worried that the recent price tag may be more than a temporary blip. Contrary to their arguments, Biden, like others, has pointed to some goods that sent huge price jumps earlier in the year, but which have now been sharpened.
For example, timber prices rose to a record $ 1,700 per tonne. A thousand table feet in May and has fallen about 60% since. But the latest price is still 83% above the level two years ago before the pandemic hit.
An important Democratic vote warns Joe Biden and his colleagues that consumers will not approve of their big spending plans if prices continue to rise.
A broader signal is sent by the CRB Commodities Index, which tracks global commodities; it has risen by 26% since the beginning of the year and at its highest level in five years.
Uncle Joe promised under City Hall that if Congress passed the $ 1.2 trillion infrastructure bill and the Democrats $ 3.5 trillion wish list messed up in a bill, “We are actually reducing inflation. Reducing inflation. Reducing inflation …”
Like Dorothy in Wizard of Oz, Biden seems to be thinking of repeating something three times magically making it happen. If only he could click on his heels.
He suggested that spending would provide “good opportunities and jobs for people who actually want to reinvest the money back into all the things we’re talking about, drive prices down, not raise prices.” Who knows what that means.
Perhaps Biden means that over time, infrastructure investments will produce higher productivity, which will actually help curb inflation. But since in our bureaucratic country, building a bridge can take a decade, it is unlikely that investing in such projects will help families soon.
In its recent six-month victory, Biden assured voters that “the data show that most of the price increases we have seen are – were expected and expected to be temporary.”
It’s pure malarkey. A year ago, the Federal Reserve, which is tasked with controlling inflation, estimated that PCE inflation (their preferred target) would be 1.6% this year; their latest forecast is 3.4% – almost double.
Certainly the last year has been full of surprises and we need to cut the Fed somewhat slack. But it is noteworthy that even 12 months ago, while they expected our economy to grow by 5% this year – more than double the long-term interest rate – they did not anticipate much inflation.
Now the Fed predicts that inflation will fall to around 2% next year; what could go wrong?
Firstly, we have a shortage of workers, which is pushing up wages. The NFIB, an association of small business owners, recently reported that almost half of its members are unable to fill vacancies, more than twice the historical average.
Not surprisingly, a record number of small businesses are raising wages. To cover their costs, almost half also raise prices, the highest number since the beginning of 1981. This is how inflation takes root.
Second, the growth rate of the economy may taper slightly, but it will be maintained at a high level by the extreme shortage of available goods. Inventories are at the lowest level ever in terms of sales; companies will continue to crib to store empty shelves.
Third, house prices are rising; last month, the average US house price rose by 23.4% from the previous year. Although the cost of the house is not included in the inflation calculations, there is an excess effect in the calculated housing costs, which amounts to 30% to 40% of the indices.
Fourth, the Fed continues to ignore the strong impact of net consumer value, which has risen by tens of thousands of trillions of dollars over the past year thanks to rising stock and housing prices, leading to growth of approx. two quarters.
An important Democratic vote warns Joe Biden and his colleagues that consumers will not approve of their big spending plans if prices continue to rise. People who pay more for cars, groceries and housing will connect the dots between their higher bills and the trillions being pushed out of government … even if Biden does not. And they will punish Democrats in the meantime.
Not a joke.