How much does one need to know to predict what the Fed has to do? Fed-watching and guessing when, if, how much, and how many rate cuts are coming are pervasive in various media and personal discussions with meticulous analysis of CPI, PPI. PDQ and the phases of the moon.
One thing one needs to know: US Government expenditures are up to a $6 billion per day deficit and rising. A question is obvious: What do they have to show for it?
The expenditures authorized in the Recovery Act, CHIPS Act, Infrastructure Act, Inflation
Reduction Act (the name is a high point in misinformational labeling), Omnibus Act, Consolidation Act are now, in effect, raising debt costs to $6 Billion per day deficit and rising with very little to show for these expenditures. While $7.5 billion was authorized to build EV charging stations; we now have seven. Yes, seven. Not seven thousand or even seven hundred. Seven.
The car companies spend hundreds of billions making electric vehicles no one wants to buy. Millions are spent to develop copper mines in Alaska for the Energy Transition that Biden is demanding because of climate change, but the Biden Administration withdraws their permits. $500 billion of student loan forgiveness. Half a trillion dollars per year spent on benefits for illegal immigrant terrorists, thugs, gang members, Chinese spies, and drug dealers. On and on.
An economy can only tolerate a certain level of waste of its currency. Milton Friedman made it clear. Inflation has one cause: money spent with no benefit. We are facing inflation for as far as one can see. If the Fed reduces interest rates, inflation goes higher. If it increases rates, we will have a recession, probably a severe one. The Fed put itself in this squeeze by denying inflation was on the way when these big expenditures were being authorized and mandated; but, how could they expect anything else? Even the International Monetary Fund (IMF) is now issuing warnings about how large government debts, led by the US (maybe the only leadership position we still have) imperil the world economy.
Even the Biden Administration realizes how inflation creates a doom loop and destroys an economy. They are worried about a recession just before the election. So, true to form, they are trying to blame everyone except themselves: Business (always a villain), OPEC, the Tooth Fairy, Big Pharma, and cattle ranchers - but these are inflation victims, not causes.
The oil business and oil prices are a particular favorite for Biden to blame. The oil price has wandered upward for about a year and a half as inflation increased. The oil business is like any other business. Inflation increases it costs and it must pass those to its customers by increasing the price of its product. Supplies and services costs increase. Employees need higher pay to cope with their own increased cost of living. Inflation leads to increased interest rates, which increase insurance costs, cost of capital, and investor rate of return expectations to make the investment needed. As companies increase their prices, inflation increases, interest rates increase, and inflation increases. Paul Volcker showed that drastic measures are needed to stop inflation. It is tough for a while, but it has to be done. Biden is hoping that it will not need to be done until after the election. By then, the cure shall be even worse.
More on Biden Foreign Policy
Last October the Biden Administration made a deal with Nicolas Maduro, the drug thug President of Venezuela, to lift economic sanctions on Venezuela, allow American and other oil companies to move in and develop production, if Maduro agreed to hold free and fair elections scheduled for next July.
Maduro knew who he was dealing with and never even pretended to comply. He banned his main opponent and threw dozens of members of the opposition in jail and threatened to invade Guyana next door. Venezuela has been closely aligned with Iran since the beginning of this century and is a major funding source for the Iranian Revolutionary Guard. An Iranian missile base was built there in the early years of this century. It waits to be nuclear armed and is designed to threaten the United States. Eight million Venezuelans have fled the country; Denver’s streets and hotels are full of them.
The agreement with Maduro was for six months and several companies including Chevron, Italy’s ENI, Spain’s Repsol, and others took advantage to start operations. The agreement is now over and the Biden Administration announces it will re-instate the sanctions. The companies that started operations during the agreement period will be given waivers and allowed to continue, however.
So much for hard conditions imposed by the Biden Administration.
Maduro read the Biden Administration accurately; he never pretended to comply with its conditions. Now, he has oil companies to develop his resources and make him rich, thanks to Biden.
Other oil companies will be given licenses to operate in Venezuela in accordance with “US national security and foreign policy interests.” Once again, it favors Iranian interests and the drug thugs in Caracas overs the interests of its own citizens. Meanwhile, the Biden Administration continues to constrain oil development in the US.
As I said previously, the Biden Administration is living up to Bernard Lewis’ comment that the US is a treacherous friend and a harmless enemy.
The US military wonders why they have a recruitment problem?