https://scottgrannis.blogspot.com/
Scott G: "It's no secret that virtually every recession in the past 50 years (with the exception of the brief economic collapse of last year) was triggered by the Fed tightening monetary policy in order to bring inflation down."
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He ends with: "there is little reason to think that Fed tightening—which has already had a significant impact—will be as much of a threat to the economy as past tightenings have been. With one major caveat: Congress must resist Biden's pleas for more taxes and more spending. More taxes would weaken the economy and more spending would aggravate inflation pressures, but neither seem very likely in my judgment."
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I disagree, but time will soon tell.
The economy declined in the first quarter by 1.4%. A recession they define as 2 consecutive quarters of negative growth (decline). Second quarter ends at the end of June. GDPNow (Atlanta Fed) keeps dropping the Q2 forecast, now at 0.9%. If that ends up negative, we are already in a recession and have been since the first of the year.
https://www.atlantafed.org/cqer/research/gdpnow Even if the numbers come in exactly as stated, that is negative net growth over the last two quarters, whether they call it a recession or not.
Tightening the money supply due to inflation causes recessions, but the inflation itself is putting brakes on the economy. Wages are not going up as fast as prices which in simple terms means - we can buy less.
Real growth is nominal growth adjusted for inflation (and the CPI greatly understates inflation). The higher the inflation, the harder it is for nominal growth to keep up with it, (right?) and inflation right now is the highest in 40 years.
Inflation (roughly defined) is more money chasing fewer goods. Grannis says M2 is under control, that's good, that's one side of it, but what about producing more goods (and services)? For that, Scott says, "Congress must resist Biden's pleas for more taxes and more spending."
True but resisting making it even worse is not much of a stimulus. What this economy needs, for one thing, is immediate energy stimulus in the form of freeing the energy producers from the current government stranglehold. We had pipeline shutdown, the leases stopped, federal lands blocked, fracking under attack, and rhetoric that says fossil fuels will be transitioned out - before their replacement is ready or available. That's how you get panic buying in markets, not how you get more supply, but the administration is adamant about not changing course on climate religion over economics no matter the consequence.
Here's another idea to stimulate the economy without direct tax cuts or spending changes, INDEX LONG TERM CAPTIAL GAINS TO INFLATION. (Somebody tell Joe Biden). Free up the capital and let it go to it's best use, there's a novel idea.
We have all these anti-growth policies and then can't figure out, where's the growth?
The more the economy grows, which is very little right now, the more squeezed energy markets are, the more prices will go up until all the inelasticity is squeezed out of the demand and people start to break. That is the point where people have to walk, carpool or just not go - to their second job for example. And there is no way out without changing course.
Sounds like a recession coming to me. Unless we change, which they won't do.
