The Federal Reserve Open Market Committee meets this week and faces the ultimate decision regarding the creature they have unleashed on the global economy:
Do they continue stagflationary policies or initiate a financial crisis by actually ending the era of easy money?
The equity markets will vote this week before the April 30th to May 1st meeting and if $HYG is any indication, the Fed will vote to maintain higher inflation for longer.
Obviously the “higher for longer” theory applies to inflation, not interest rates because the speculation in meme coins, high yield debt, and any equity that yells “Artificial Intelligence” during their conference calls continues at a torrid pace.
Thus when I penned a piece a few weeks ago titled TINA Means Inflate or Die, I was referring primarily to the burden on taxpayers which will have to be absorbed due to the skyrocketing fiscal irresponsibility of the government. In reality, the Federal Reserve appears willing to accept a stagflationary outcome for the time being as long as unemployment does not begin to skyrocket and the “gig” economy continues to function unencumbered by the business cycle.
Meanwhile the proverbial “cash on the sidelines” continues to grow each quarter as the older and wiser adults in the US population base have already been burned by Wall Street at least twice in their lifetimes (1999-01 and 2007-2010) and do not trust any of these clowns to invest their money safely and are quite happy to just get a 5%+ annual return.
A problem that Jay Powell and the Fed have elected to ignore is the persistent increases in inflation and the eroding of spending power for the middle and lower classes in our society. After the free for all with the CARES Act and absurd amounts of government giveaways to restart the economy after the “pandemic” it was apparent the inflationary rocket has left orbit, creating a painful reality for those least able to afford it.
The Powell Stagflation began the minute the pandemic party money ended in 2021 and has continued as the chart below illustrates with flat-lined disposable income but continued exponential increases in consumer prices.
Thus far the consumer has survived and in some cases “thrived” if one is to believe major financial media sources and the data from the BLS. But if one looks under the hood, a large portion of the American public is dancing on the razor’s edge of disaster, where they leave that standard of living and fall into the government assistance abyss.
Over 5 million Americans now have full time and part time jobs just to survive, the highest numbers since record keeping began in 1994. This data however, does not capture those who act as independent contractors as part of the “gig” economy so that number is probably two to three times higher than what the Bureau of Labor Statistics is reporting. In fact, the chart they push forward is the following one because it’s easier to digest.
When I refer to the BLS cooking the numbers, I stand by that statement. Revisions, especially annualized have become the punch line material of comic books, yet the data given to the American public is all that most of us have to work with.
These revisions and annualized methodological voodoo anomalies have increased the level of distrust not just by American citizens, but financial institutions worldwide. But using the existing data, one has to ask why the changes and how the American people have been coping with what has now been almost six years of inflationary activities by the Federal Reserve and US Government.
Total multiple jobholders, be the full time plus part time or multiple part time jobs started to increase during the Obama years after 2012. Part of that happened due to redefining full time and part time as part of the Obamacare fiasco which continues to impact American society to this day. The first divergence was obvious with little if any change to CPI-U during the lost decade from 2010-2020.
After the pandemic however, the march continued with multiple jobholders following the old pattern of increasing inflation and does so now, even though the BLS promotes the idea that inflation is flat-lining between 2.5-3.5%. Unfortunately, the average American consumer knows these numbers are complete nonsense and continues to seek other income sources to supplement their already financially stressed households.
Why was 2012 the key date for the divergence and change might be a question one has to ask?
In December of 2011, during the Christmas and Hanukah holiday periods, the Bureau of Economic Analysis quietly went from a quasi-political tool of the government to a full blown political organ. All of the GDP calculation methodology was revised to make it look like Obama “saved” the American people and the Great Financial Crisis was ended under his leadership. Thus the data was revised from negative GDP figures in 2010 to slow growth starting in late 2009 with only a few quarters of a recession under Obama’s watch.
The revisions by the BEA of course caused all government and Fed economists to engage in the same type of methodology revisions in the years that followed so the data would align with the savior’s vision of how the economy was construed by the masses from 2009-2016.
The reality is that the fiscal policies enacted under Obama created a great nightmare for the Fed where Quantitative Easing (QE) had to become part of the American financial construct or another deflationary crisis would have occurred.
The era of easy money is now considered a necessity for the survival of the financial system and that is why in all probability Jay Powell will avoid interrupting the upcoming market rally this week and deliver a somewhat muted if not downright neutral FOMC statement on Wednesday. If the Federal Reserve fails to support the fiscal circus with easy money, the stagflationary environment will increase the likelihood of massive layoffs and an economic contraction heading into an extremely divisive Presidential election.
Naturally, this will result in another tax increase on the lower and middle classes as the inflation tax continues to rise unabated as there is no will to reign in either the monetary authorities or the fiscal irresponsibility emanating from Washington, DC.
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