Another good one from Marine Greg.  As you read this, remember a couple of things. One is the economic definition of inflation in layman’s terms: “Too much money chasing too few goods.” And secondly, one of the truisms I learned in Econ 101 is: Put five Economists in a room and ask them a question, and you will get six answers, all different. Why is that? Because Economics is a social science, not a hard science

 

A Binging Pivot                                                                      By: Greg Maresca

It was one of the most anticipated announcements of Joe Biden’s presidency that was nearly on par with him dropping out of the presidential race and fading to irrelevance.

For the first time since 2020, the Federal Reserve cut interest rates by half a percentage point making the range between 4.75% and 5% with anticipation of more to come.

“The U.S. economy is basically fine,” claimed the chairman of the Federal Reserve, Jerome Powell, who made the cut regardless and seemed unconvinced about anything else. To no surprise, the stock market approved following up with record highs.

When deciding on rates, The Fed has always been a reactionary institution that relies on historical data and models like the Phillips curve that was debunked two generations ago. Cutting rates will grow the money supply and bring some relief from higher interest rates. The Fed is putting pressure on inflation to bring down interest rates as the way to manage our exploding deficits.

The rate cut will only fuel inflation – an unwritten and unrestricted tax on everyone – no exceptions.

The interest rate was at a historical average, but the national financial sector and the Washington bureaucratic swamp are addicted to cheap money that makes $50,000 cars and $300,000 homes seem affordable. Over time this money infusion will make those cars and houses even pricier. Believing cheap money is the driving force of economic prosperity is as counterfeit as they come. Such behavior increases demand without an increase in supply – the root cause of inflation. Keep in mind that both food and fuel are excluded from inflation calculations.  This, my friends, is unknown to most Americans. Should food and fuel be added to the inflation number, you would be shocked.

Interest rates are The Fed’s dependent drug.

“When is the next cut coming and how big?”

A half of a percent reduction suggests the economy and its capacity for job creation is not nearly as good as Powell or any other entrenched government bureaucrat will admit.

There was no need for the cut, but lower rates produce lower mortgages and pacifies the masses making them feel better about the current political and economic situation.

The Fed, “a nonpartisan agency,” put its thumb on the scale during a presidential campaign begging the question: Is The Fed an impartial and independent agency or beholden to politics and Wall Street? Lowering rates at the expense of higher inflation seems self-serving in the run up to a presidential election that is less than six weeks away.

Powell, who served as carnival barker for the Biden administration’s highest inflation rates in over 40 years, told us inflation was “only transitory” is doing his best to foster a post-inflation merry go round.

The Fed’s decision is analogous to the hangover coming the morning after a Friday night binger. This economic hangover, however, will conveniently occur after November’s election, so make sure you start your Christmas shopping early as none of this bodes well for glad tidings.

Typically, The Fed cuts rates in response to economic downspin, not because of a supposed stable and growing economy. Provided the economy goes south with rates already low, this only serves to dig the hole deeper.

The real issue that is ignored, dismissed or unacknowledged is the ever-increasing federal spending. Every dollar spent, pilfers a dollar through taxes, borrowing or money-printing. Unless there are cuts to spending and debt reduction, nothing changes diminishing even further the fading American dream.

How about less government and regulation and more innovation and investment to drive the economy.

The cut is all about the election and The Fed’s preferred outcome. It is nothing short of a lame attempt to prop up the incumbent executive branch that would certainly preserve Powell’s job. No need for the bureaucrats to fret as it is always the working class that takes the brunt of the foibles of incessant government intervention.

The cut also implicitly implies The Fed overplayed its hand and is concerned about a recession.

Prematurely cutting interest rates is the perfect recipe for an increase in inflation. The dollar lost 20% of its value in just three plus years turning greenbacks into proverbial toilet paper.

The Fed’s rate cut in a supposed stable and growing economy only kicks the inflation can farther down the road until after November’s election.

How politically expedient.

Originally posted 2024-09-29 09:47:41.