ECONOMY ON THE ROPES: Policy Error Fallout!

Ironically enough, many Americans celebrate the pride and value of hard work by taking a well-deserved day off on Labor Day. Just as ironically, it’s the same bureaucrats who refused to put any real effort into reining in government spending who are now calling for fiscal discipline.

Historically, the first Monday of September is supposed to be a tribute to working people – a day to consider the nobility of labor. Firefighters, police officers, teachers, and everyone who makes an honest living is honored on this day and really ought to be honored every day.

After all, it’s the workers who contribute taxes so that the government can keep entitlement programs running and stimulate the economy through massive spending – or that’s how certain bureaucrats envision the government’s purpose and function.

This skewed vision was in full display as Congress voted for trillions of dollars in post-COVID spending over the past two years. Meanwhile, the Federal Reserve ramped up quantitative easing to unprecedented levels, buying massive amounts of Treasuries and mortgage-backed securities from banks and adding enormous quantities of fiat currency into circulation.

The U.S. dollar was already on a collision course with worthlessness before COVID-19; afterward, the government and Fed accelerated the dollar’s destiny to be worth less than the paper it’s printed on. Remember Fed Chairman Jerome Powell’s promise to start tightening in earnest earlier this year? That promise hasn’t been fulfilled yet – but this is the month when the Fed’s balance sheet roll-off is finally supposed to start.

This has index fund investors in panic mode since the stock market has become inextricably linked to the size of the Fed’s balance sheet. As the proverbial punch bowl gets taken away, the only thing that can hold up the market is corporate earnings, which aren’t exactly rock-solid as businesses struggle with labor and supply shortages, not to mention “sticky” inflation.

Understandably, investors are concerned because quantitative tightening is set to double to $95 billion per month starting this month. Also this month, the Fed is expected to raise the benchmark interest rate either by 50 or 75 basis points, and probably the latter.

This is what happens when leaders choose short-term pandering over long-term economic stability. Unfortunately, America’s workers end up footing the bill for the government and Fed’s persistent policy errors. They made poor choices time and again, painting over the nation’s problems with dollars until there were far too many in circulation.

The value of real work and courageous decision-making becomes more evident than ever during this holiday weekend as leaders scramble to cover up their mistakes and hardworking Americans try to forget their troubles for just a few days.

Instead of real work, we only get a war of words: Biden claiming that 70% of U.S. inflation is due to “Putin’s price hike” while Putin incisively strikes back, taunting Biden over “Putin inflation” and countering that the “current U.S. administration” is to blame for higher consumer prices.

M2 Money Supply Chart. Courtesy: TradingEconomics.com

With the November midterm elections imminent, the current administration can’t bring itself to admit that the U.S. is causing its own inflation and is furthermore spreading it around the world as nations struggle to make higher interest payments on dollar-denominated debt.

Don’t expect the White House to concede that it’s putting Band-Aids on foundational economic wounds using the same print-and-spend policy (paying off college loans, billions in clean energy agenda spending for the so-called “Inflation Reduction Act,” etc.) that got us into this mess in the first place.

While millions of hardworking Americans take a day off on Monday, the bureaucrats won’t take any time off… from spending your tax dollars and making the nation’s problems even worse, that is.