Recession?
Capital Thinking • Issue #1122 • View online
When Sec Treas Janet Yellen was appointed, she inherited a steady string of Trump Era/Pandemic inflation at a rate of 1.5%.
If she had advised the new President, “Steady as you go, Old Boy” things would have been hunky dory, no?
-Jeff Minch
We Are In A RECESSION, You Bloody Fools
Instead, the Sec Treas and the POTUS enacted a goodly number of policies that immediately drove inflation higher — chief amongst them was the emasculation of the energy business.
Then, Sec Treas JY said, “It’s all transitory, fellows, trust me. It won’t be higher than say . . . . . four percent.” Haha, yes, she said just that. Inflation was already topping 6%, but she refused to buy it.
Recently, Sec Treas JY said, “I blew it.” Further, she did not say and currently we are in the midst of almost 9% CPI and 12% PPI. Of course, PPI is a predictor for CPI, so the immediate future doesn’t look so grand.
BRC prediction: Inflation is 12% by year end and gasoline is $6/gal.
The word “transitory” has been removed from the lexicon around the White House.
Recession, Big Red Car?
Sorry, off topic. So, the Federal Reserve just today revised Q1-2022 from NEGATIVE 1.4% GDP growth to NEGATIVE 1.6%. Ooops.
The current prediction — GDPNow — from the Atlanta Fed is for ZERO growth in Q2-2022. This is down over the last couple of months from almost 2% growth to now ZERO – 0%.
Being the numbers wizard you are, you quickly notice that the combined growth for Q1/Q2 will be a negative number.
The definition of a recession – one that is favored by a goodly number of economists – is two consecutive quarters of negative growth.
By that measure, one might confidently say, “We are already in a bloody recession, you fools.”
But, but, but, Big Red Car? Really?
The White House, the American left, the media (which is redundant, I recognize), and the financial press refuse to recognize this reality because it is not fashionable to speak ill of the economy.
WE ARE IN A BLOODY RECESSION and negative growth is not the single bit of evidence.
What else, Big Red Car?
The Fed bumped their guidance rate by 0.75% and the whisper is another such bump is coming.
Why? Because when interest rates rise, folks borrowing money to buy homes, cars, boats, motorcycles, beach houses, farm equipment, plant and equipment become cautious and forego those investments thereby splashing cold water onto what is perceived as an overheated economy.
Already new home building is contracting and home resale inventories are building. This is only the beginning of the beginning.
Companies — talking to you, Tesla — are already beginning to trim staff. It starts with an Exacto Knife followed by an axe.
A bit of empirical wisdom from the last time we faced a similar level of inflation during the Jimmy Carter Era is that interest rates must increase to twice the rate of inflation to have a firm braking impact. Yikes!
Yes, grasshopper, the US Prime Rate went to 20.5%.
I recall this with great clarity as I was involved with building a lovely building in Austin By Go Texas as the Prime Rate marched ever upward.
*Featured post photo by Jack Hamilton on Unsplash