This Economic Recession Is Baked In

This Economic Recession Is Baked In

The price increases of goods and services in 2021, 2022 and YTD combined with higher interest rates have ensured that a recession will follow.

The economic damage is done. The Fed could take interest rates to zero percent tomorrow and restart QE and it would not stave off this recession. Prices for goods and services have increased so dramatically since 2020 that consumers will continue to delay purchases, trade down or forgo purchases entirely. To reverse this trend, prices for goods and services will have to decline materially. Price inflation is slowing, faster than CPI shows, but that won’t be enough to avoid recession. Further, if you are like me and believe that price inflation has been much higher than what has been reported over the past two and a half years, you know we have been in a recession for some time (Nominal GDP – GDP deflator as calculated by the Government does not begin to tell the real story as the GDP deflator is significantly understated).

Here is to hoping that the Fed stays out of it. Let banks fail, allow the economy to slow naturally and prices with it. However, Powell will ultimately pivot. I would like to see the Fed Funds Rate run at 3% in perpetuity. However, we have such a fiscal debt addiction that the Fed Funds Rate will likely go lower, probably around 1% (if not lower).

This is what happens when the fiscal side spends at out-of-control levels for decades:

  • The American people suffer via a weaker Dollar / higher prices and a suffocating debt load.
  • The Government’s debt addiction ensures that the U.S. will suffer under a Managed Economy, Managed Market system rather than thrive under a Free Market, Capitalist system as was intended by our founding fathers.

The Fed’s printing is the real economic evil. Look no further as to why Americans’ purchasing power has declined dramatically, especially since we came off of the Gold Standard in August 1971.

I am old enough to remember what the Capital Markets were like before they were forever ruined by endless QE and zero interest rate policy. The markets are no longer free, nor is the U.S. economy as the Federal Government has extended its tentacles into every darn corner of Amercian life, both at a personal and organizational level. Our system is broken.