American inflation rates today are at a 30 year high. You read that right - 30 years since inflation was in the 6% range before today. Key financial experts are calling Biden out on it.
Mohamed El-Erian, a top bond expert, says the Administration’s claim that the surging inflation rate is “transitory” is absurd. Inflation is broadly based and accelerating. Democrat economist Larry Summers says Biden has misread the signs and should put an end to the massive spending plan he is promoting. Even left wing Forbes Magazine is reporting that inflation is serious and will be a thorny problem. My guess is Biden will press on ignoring the risks and putting the American economy in trouble that is “far from transitory”.
Biden is old enough to know better, or so one would think. But in my opinion, his cognitive faculties are so damaged by age and possibly dementia he simply can’t grasp the gravity of the economic danger.
World Bank data that inflation rose through 6% in 1973, a pit stop on its way to 14% during the Nixon years.
U.S. Inflation Rate and Annual Change
Nixon’s wage and price controls and interest rates in the high teens were needed to tame the runaway inflation that followed, with the prime rate peaking at 18.87% in 1989.
Biden’s plan to inject trillions into the American economy is tantamount to using gasoline to quench a fire. The Biden administration has already spent $3 trillion on COVID relief including a recently approved a $1 trillion infrastructure bill, but that is not enough for “sleepy Joe” who is pushing for a slimmed down $1.5 trillion package of left wing social spending that panders to his extremist base.
Like many left wing policies, the planned spending pretends it will improve life for lower income Americans, but in fact it will fuel inflation which is a tax on the poorest members of society - those who need to spend virtually all of their income to subsist. The poor can do little to avoid higher prices for food, housing, energy, transportation or medical treatment and drugs. Inevitably, they are compelled to protest or to strike for higher wages and benefits simply to survive. The vicious cycle then takes on a life of its own as employers struggle to at least break even as their costs of labor mount in paralled with higher costs of input materials and they are forced to raise prices or fail. Many of them will fail, unemployment will rise, and the economy will shrink.
Policy makers can pretend they can control the outcome but in fact they are victims of market forces they have unleashed and have only blunt tools to correct the ship of state. The Nixon years should have given Biden an education on the folly of allowing inflation to become endemic since he was elected a Senator in 1973 and was part of government throughout the critical period.
It seems that either he learned nothing from that experience or in his diminished mental state simply can’t remember it.
It is part of the fact of Canada’s history that when the U.S. gets a sniffle, Canada gets a cold. Our trading relationship with the U.S. makes Canada particularly sensitive to economic conditions south of the border, and we have our own problems here. Justin Trudeau is outspending Joe Biden on a per capita basis and shows no signs of easing up, despite admissions by Bank of Canada governor Tiff Macklem that inflation if “transitory” will experience a long transitory period, saying that “inflation is transitory but won’t be short lived”. Transitory used to mean short-lived but today it means anything short of “forever”. On that basis, I am encouraged to think the Trudeau government may be “transitory”.
In an earlier I article I argued that Canada was stuck with “stagflation” - a period of high inflation and slow economic growth. I am inclined to think that any economic growth is an optimistic hope since the round of personal and business failures that comes with high inflation will make any growth virtually impossible. Like Biden, Trudeau is mounting an all-out attack on the resource sector in the name of the specious “climate change” alarm, and in Canada’s case a lack of growth in resources can rarely be overcome by improvements in the balance of the economy.
There is little time left to protect what you own, but “smart money” will fix the rates on debt where possible; keep a reserve of cash; and, invest in hard assets rather than fads and fictions. The “hard assets” most likely to survive an extended period of high inflation are real estate (if you can limit your exposure to variable rate debt or owe nothing); infrastructure based companies like pipelines and utilities; and, debt free low cost resource companies in the mining and oil & gas industries. The traditional inflation hedge - gold - may come under pressure from carrying costs but debt free low cost gold miners should offer some protection.
I will revisit this dire prediction in one year’s time, just as the U.S. enters the mid-term elections. If I am correct, the American electorate will have had enough of Democrat policies, control of the Senate and House will revert to conservative hands, and the Biden administration will serve out its last two years as a “lame duck”.
We should be so lucky.