Posted on 09/22/2022 5:50:09 AM PDT by BradtotheBone
he Federal Reserve hiked interest rates by 0.75% on Wednesday, making an aggressive move to tame inflation that could have other side effects — including a possible recession. The rate increase could also explode federal deficits even further in the years ahead.
A new analysis from the budget hawks at The Committee for a Responsible Federal Budget (CRFB) predicts this week’s rate hike alone will add $2.1 trillion to government deficits over the next decade.
That’s on top of a series of hikes we’ve already seen this year that are already set to add trillions more to the deficit in coming years. The central bank concluded its two-day policy meeting Wednesday by suggesting it could hike rates further in the months ahead.
To be sure, the deficit impact is far from the most pressing concern for policymakers focused on inflation. It nonetheless is a significant factor likely to challenge the Federal Reserve and fiscal policymakers as they try to navigate a “soft landing” that brings down the inflation rate without triggering a recession.
“The irresponsible fiscal policy [of recent years] has made the job of the Federal Reserve many times more difficult," Maya MacGuineas, the president of the CRFB, told Yahoo Finance earlier this week. This challenge, she added, “makes the chance of a recession even more likely.”
(Excerpt) Read more at money.yahoo.com ...
Theyve already began blaming the “stubborn” inflation on “consumers”...lol
Because they made interest rates stupidly low to increase spending instead of debt service. Accounting tricks come home to roost.
Well said!
Any federal deficit is offset by a surplus in the private economy. The Treasury has its own bank, the Federal Reserve, that can give all the money it needs to pay interest on bonds. If you are interested in how this works in reality and not the way the media exploits it to create fear, here is a good YouTube video with Warren Mosler who figured it out in the 80’s and made a lot of money for his clients around the world.
https://www.youtube.com/watch?v=W97s3zbFKvc&t=1773s&ab_channel=RealVisionFinance
I see what u did in your tagine there. Patton-esque. Nicely done.
As Biden & Co. call it spending your way to wealth.
LOL, it’s simple math that I learned in 7th grade. Loans, principal, interest, etc. How come the Harvard graduates in power can’t figure out that eventually we have to pay the piper, and it will hurt like hell.
$30 Trillion at 5% (and that’s optimistic going forward) means $1.5 Trillion added to the budget that must be paid, or the nation goes under for good.
Have a friend that has food assistance beginning October they are suppose to cut benefits. She’ll be able to manages at least for now but will really have to cut corners.
Who did not see this flat spin to the ground coming?
I was looking at M1, M2 and money velocity this morning again and marvel in despair at the change in all three.
M1 and M2 have at least flattened but neither have ever come down, not not and not in the past. I think, without devaluing the currency neither can ever be decreased? The idiots printed far too many dollars and we are stuck with them and inflation.
Money Velocity is something I don’t understand but it has crashed to historical low levels and is not budging any more than the money supply.
Either of these indicators, simply taken as trend anomolies, indicate an economy in shambles that is not coming back to anything like it was... if not ever, not for a very long time.
I have heard others say the bigger problem is DEFLATION for at least the last 6 years. I have yet to see it materialize or find anyone who says this able to explain the statement.
I am not arguing one way or another but hoping to find an explanation. I sure have not seen any DEFLATION of anything but the value of our dollar.
Please see my post #29 on this thread asking about money supply and velocity.
Let's start with this point.
1. Imagine Sequoyah is a barber and Alberta's Child is a landscaper.
2. You have $1 in your pocket. I have $1 in my pocket. There are no other people in this world. The "money supply" in our economy is $2.
3. You charge me $1 for a haircut. I charge you $1 to cut your lawn.
4. I get my hair cut once a month. You get your lawn mowed once a month. This means you have $12 in annual sales (12 x $1) and I have $12 in annual sales. The total GDP of our economy is $24. That means the $2 in "money supply" has facilitated $24 in annual business activity.
5. Now suppose I have concerns about my finances, so I stop getting my hair cut every month. I go to you for a haircut every other month, and cut my own hair every other month. Since your income has been reduced, you respond by letting your grass grow a little longer and only paying me to mow it every other month. So now you have $6 in annual sales ($12 x 6) and I have $6 in annual sales.
6. The end result of Item #5 is that we have the same money supply ($2), but there is only $12 in business activity instead of $24. The VELOCITY of the money has slowed considerably -- because it's changing hands less frequently.
7. Now imagine what would happen if I stuck my dollar in my mattress and cut my own hair every month. And you decided to mow your own lawn. In this scenario, we have the same money supply of $2 but NO velocity of money because we aren't conducting any business with it.
1. Population growth (more people buying products and services)
2. Productivity growth (people producing more products and services with the same expenditure of time/money)
If you have both of these in place, the economy grows strongly. If you have one but not the other, the growth is weak or even non-existent. If you have NEITHER, the economy doesn't even stagnate; it SHRINKS.
U.S. population growth has been small for years now.
I would make the case that U.S. productivity "growth" is negative.
Put those two together, and you have all the ingredients for a major decline in demand for products and services. That's a classic deflationary environment.
Yes, which surprises me as far as the Biden administration is concerned. I would think just like previous administrations making the cost of holding debt worse would be something they would avoid. Meaning they rather have inflation than more expensive debt servicing.
A reasonable explanation of money velocity, my recollection is refreshed from when we argued for increased permitting offshore and lower royalties for very deep water. How though can there be such low money velocity for so long and still have inflation, the too many dollars chasing too few goods?
I get the deflation example but there are too few of some things and the prices continue or have continued to go up until somebodys can’t make the payments. I’ve lived that in the extreme in oilfield boom and bust cycles in places like Midland and Oklahoma City, missed the entertainment in Houston but decided to get out while I could in the last round that never came so much somehow.
None of the scene bodes well except that the ROW is in much worse shape and thus we attract their dollars or investment. So some say.
As a practical matter, the answer is NO but is there still a published imaginary spending limit - a federal debt limit? The so-called debt ceiling?
Thanks for the example!
I see right away I need to contact Sequoyah and Alberta’s Child for personal grooming and lawn maintenance.
They’re deflating alright, anyone but their pockets.
87k agents to make sure.
In the short term, all the Democrats care about is power, so whenever they can blame the economic problems on Republicans, they will. After the mid-terms, you will start seeing stories in the media about how Congress is causing a recession. You can be sure that their plan for 2024 is to run as the party that will fix the economy. It's ironically absurd. But they'll do it, and it will probably work.
But it won't matter because 10 years of this and the economy is going to collapse. If not just from the debt, but also from the disastrous shift to renewable energy and the phase out of fossil fuels long before it can happen gradually on it's own terms.
There needs to be an effort to create a parallel economy, perhaps with cryptocurrency. Preserving assets is the most important thing we can do now.
This comes down, in large part, by the abdication of the media, national and local, of their responsibilities in more or less factual reporting.
They’ve always been lefty-leaning but to just take the economic issues and the media ignoring them:
- Reaching the point of near-collapse because of profligate money creating and
- likewise, with the FED maintaining absurdly low interest rates at the behest of politicians and money hungry financiers, to include those regular folk “playing the market”
-throw in not clearly documenting the fragmenting of the nation with largely unfettered illegal immigration and the accompanying economic stresses
Those and many other facets of our society were not only ignored but cheer-led only for the advancement of liberalism. Once the juornos abandoned any adherence to professional practice, our demise was surely hastened.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.