Cascading Policy Errors
1: Covid hit. Lockdowns that were arguably excusable in the beginning, lingered far too long, affecting far too many businesses. Policy error one.
2: The Fed reacted with QE far to excessive and far too long, continuing all the way until March 2022. Policy error two.
3. Free Money from Congress. Again excusable in the beginning, but the second round by Trump was excessive and the third by Biden was preposterous. Policy errors three and four with Biden getting far more of the blame.
4. Demand shift to goods away from services as a result of the above three items.
5. The demand shift to goods happened when there were fewer workers due to continuing lockdowns.
6. The US meddled in Ukraine in 2014 setting the stage for war. And Ukrainian President Volodymyr Zelenskyy kept insisting to the bitter end it wanted to be in the EU and NATO, both red flags to Putin. Accurately label Zelenskyy’s statements a policy error. And blame Putin for the war, so that makes policy errors five, six, and seven counting US meddling in 2014.
7: Let’s not leave Angela Merkel out of this. Kowtowing to the Greens, Merkel mothballed Germany’s nuclear plants creating greater dependence on energy from Russia. This is policy error number eight.
8. And what about Biden and the US Greens telling Big Oil it wanted to put them out of business. Guess what? Energy investment plunged. Policy error number 9.
9. Inane sanctions in response to the war busted supply chains in energy. Policy errors ten and eleven by the US and EU.
10. Finally, please consider Biden’s stupid energy policy to rising oil price. Instead of taking actions to increase oil supply, Biden blamed oil companies, threated tax hikes, threated FTC involvement, blamed gouging, then with refinery capacity already crippled demanded more ethanol from corn. The ethanol demand will increase need for fertilizer, increase summer smog, and drive more small refiners out of business.
I am not sure how many policy errors there are in point ten. Pick a number.
Passing the Buck
Putin Tax
Search for Enemies
Paul Krugman, No Policy Errors?!
No, it’s not all Biden’s fault. It’s Biden, the Fed, Congress, Merkel, Putin, Trump, the EU, and Zelenskyy.
Please apportion the blame, but here’s a simple way to start:
- It’s mostly Progressive free money policies by Biden and Congress coupled with inane responses to to the war with the Fed providing excess stimulus all the way to March of 2022.
- Key policy errors by Merkel and the US in 2014 set the stage for compounding everything that followed.
Recession Watch Update, Where Do Things Stand After the Huge Fed Hike?
Meanwhile, regardless of blame assessment, a recession looms.
Please consider Recession Watch Update, Where Do Things Stand After the Huge Fed Hike?
This post originated at MishTalk.Com.
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Mish
In any given year, how much of a wildfire problem is starts with the late winter and spring weather: how much rain? Lots of rain means lots of “grassoline.” The inflation analogy would be to the Fed’s QE. That provided the fuel. Back to wildfires, they are typically started by the region’s dry thunderstorms; the rain evaporates before hitting the ground, but the lightning gets all the way there. A wet spring and a really hot and dry summer sets up the fires, which can easily burn tens of thousands of acres. Even hundreds of thousands. On the inflation front, Trump’s fiscal stimulus followed by Biden’s turbocharging of the same, with the Fed still adding fuel, and the grass is now on fire.
Grass fires burn very hot but not for long. To continue the inflation analogy, we have to switch to forest fires, which usually take a bit longer to start and MUCH longer to control and to douse. A forest fire out here usually doesn’t really stop until sometime in winter, when the snows return. A big grass fire will typically be undetectable the following year; the grass grows back. There are exceptions, but not very many. Forest fire damage is visible for many years. Same with inflation. The price level rises, and stays there. Commodity prices tend to come back down, but not the rest. The risk of deflation is too great to allow it, so every “burn” lasts pretty much forever.
So: QE was the fuel, and fiscal stimulus and its contribution to monetary velocity was the lightning. Or, in California, the arson.
He said there will be a “change of elites” in the West as part of the “revolutionary” shift initiated by the Ukraine war and the US-Europe overreaching: “Such a detachment from reality, from the demands of society, will inevitably lead to a surge of populism and the growth of radical movements, to serious social and economic changes, to degradation, and in the near future, to a change of elites,” Putin said.”