Lots of things can trigger inflation. Shortages of available products will drive up the price of products that are available. Increasing the supply of money dilutes the value of the dollar and also drives up prices. Even consumer expectations can drive up prices. When people expect prices to go up, they behave in ways that actually drive prices up.
Unfortunately, the last 3 years has been a perfect storm for inflation. Via COVID lockdowns, vaccine mandates, extended unemployment benefits, and restricted energy production we broke the supply chain and created product shortages that didn’t need to happen.
Runaway government spending for COVID relief and infrastructure has pumped trillions of dollars into the economy and diluted the value of both our paychecks and our savings. According to Deep Knowledge Investing, 80 percent of all dollars in existence have been printed in the last 2 years!
Government denial of the problem doesn’t help matters either. It has only destroyed consumer confidence – creating the self-fulfilling expectation that the economy is headed for bad times. Eighty percent of American now believe the country in on the wrong track. We expect inflation to continue, making it more likely that it will.
The official inflation rate currently stands at 8.6 percent. However, what the government isn’t telling us is that they have continually changed the manner in which that number is calculated over the past 50 years. By changing the way housing and consumer product price increases are accounted for, today’s official number doesn’t represent the same thing that the inflation number did in past years. Were we to calculate inflation now the same way that we did in 1980, many economists believe the actual inflation rate would be twice as high as the official number. We are not approaching a Carteresque level of inflation, we have reached it.
The Federal Reserve has belatedly come to the realization that inflation is an actual crisis and has raised the interest rate by .75 percent. They will continue to raise the interest rate until the economy “cools.” That’s economist language for, “It’s time to pay the tab.”
But what does “cooling” the economy mean? It means that the Fed is going to lower consumer demand by raising interest rates until supplies match demand. Once that happens, prices will stabilize.
But “cooling the economy” sounds a lot more benign than it really is. It means that middle and lower-class families are about to experience years of pain and suffering. Homes will be lost. Families will be displaced. Savings will be wiped out. Unemployment will skyrocket. It will all happen because our politicians decided to fiddle with a supply chain they didn’t understand, and spend money they didn’t have.
Here’s how the process will play out. Rising interest rates will result in fewer people being able to afford big ticket items like homes, automobiles, and appliances. As the purchases of those items slows, jobs will be lost in the construction and manufacturing sectors. Unemployment will begin to rise.
As unemployment increases, spending for other consumer products will also slow, resulting in further job losses.
Retirement and savings accounts will be consumed as people struggle to survive against rising prices and falling employment. Once enough savings has been lost, and enough people have lost their jobs, the demand for products will drop. As product supplies catch up with product demand, prices will begin to stabilize.
But that won’t be the end of the suffering. Once inflation is defeated, we can’t just flip a switch and go back to work. Companies will have gone out of business or shrank in size to serve a smaller customer base. Growing existing businesses and creating new ones will take time. Instilling consumer confidence, to begin spending rather than saving will also take time. Jobs will not return until both of those things happen.
A slow climb back to pre-COVID prosperity will take years, once inflation is defeated, all because our political leadership thought they could shut the economy down for a virus and spend their way out of the resultant problems.
We can get some idea how bad things will get by looking at the Carter administration. That’s the last time inflation was this bad. In 1980, the Federal Reserve raised the prime rate to 21.5% (our prime rate is currently at 4.75%). Unemployment exploded to 7.5%. Inflation finally declined to 4% and unemployment to 5% in 1988 – eight years after inflation had spiraled out of control under President Carter.
Just as after the Carter Presidency, it’s going to take years to climb out of this mess. But the climb out won’t even begin until our current Gremlin in Chief is removed from the Oval Office. Has he shown any ability to learn from his mistakes? Nope, he will keep doing the same things that created this mess as long as he is in office. Elections have consequences, and we’re about to get a very painful lesson on the consequences of the 2020 election.
So, around 2028, when things are beginning to return to pre-COVID levels of prosperity, and some fool at the NIH wants to shut the economy down to “flatten the curve,” remember the true cost of the last shut down. Hundreds of thousands of families were ruined to pay for it.
The next time a politician promises free stuff in exchange for our vote, remember that it isn’t free. We will pay for it many times over.
Author Bio: John Green is a political refugee from Minnesota, now residing in Idaho. He currently writes at the American Free News Network and The Blue State Conservative. He can be followed on Facebook or reached at greenjeg@gmail.com.
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