A Simple Answer To The Fed Rate Question

One of the things that I hear in many discussions about the economy is the one where the Fed is going to pivot.  Pivot to what, you ask?  Pivot back to a zero bound interest scheme that was in place for a long time.  In Europe the government-controlled interest rate actually went negative for a decent amount of time.

The financial “pundits” have been clamoring for a return to such a fantasy land scenario to “save the economy.”  It ain’t going to happen.  And if it did, it would not save the economy.

Why?  Because the second inflationary impulse is baked into the system.  The administration’s “budget” and a bi-partisan lame-duck Congress put it there with the passage of $1.7 trillion spending bill last December.  This means that the US Government is spending $2 trillion more than it is taking in in taxes.  This is accelerating the increases in the US Government debt.  And as anyone who understands economics 101, printing money you don’t have is always inflationary.  And there is NOTHING anyone can do to prevent inflation from showing up across the board in prices.

Has anyone noticed that energy costs are rising again?  Gasoline prices along with other energy prices are at their highest levels in more than 9 months.  This is not a result of a spike in demand.  This is happening at a time when more big companies are laying off significant numbers of people.

These increases will push more cost into the system.  That “reprieve” of inflation back to “just” 5% is over.  How much inflation has occurred since Biden was elected?  20%?  25%?

Jerome Powell who heads up the Fed knows all this.  At this point in time, Powell along with his Fed buddies, are probably the only ones in elite political circles who understand that continuing to spend like a drunken sailor will result in the destruction of the country.  Powell, of course, is protecting the banks.  In this case, he is also protecting the American public from the inability of Congress to step away from the spending spigot.

Significant cuts in government spending are needed.  Powell is trying to get Congress to face up to the task of actually doing that.  Interest on the Federal debt is beginning to become the elephant in the room.  It will only get worse from here unless Congress cuts at least $2 trillion from the budget.