Sometimes, you can fool all of the people all of the time
Well, a majority of the people all of the time. Our leaders have found a way to accomplish this and remain in power. They have discovered how to use wordsmithing (bending the truth up to 180 degrees), to manufacture statistics that support their worldview, and to employ gerrymandering to get their way at the polls. This creates a most confusing environment in which to discern the truth.
Our leaders want you to believe the start of the new year foretells a great 2024: We have few unemployed, GDP is up 5%, the stock market is strong, and inflation is on its way down to 2%. What could be better?
Our leaders must really believe we are stupid.
It is probable unemployment is close to that claimed by the government. All one has to do is travel around town and see the “help wanted” posters in the stores to know the labor supply is tight. The number of persons still working over 65, however, has increased to over 11 million today. This begs the question: is it possible that many young persons are ‘sitting on the sidelines’ and are not reported as unemployed? If true, then “yes” we have an unemployment problem. Not only today, but well into the future.
It would be great if our real GDP were up 5%.
Many people question the truth of this statement. The national money supply (M1) represents the monies wage earners and consumers use in their daily transactions. It includes demand deposits (checking and savings accounts) at commercial banks, and at the U.S. government, and at foreign banks. It does not include currency of the U.S. Treasury, Federal Reserve Banks, and the vaults of depository institutions.
M1 grew from $2.7 trillion in 2014 to $4 trillion in 2020. That’s a $1.3 trillion growth over six years or an average of $200 billion per year.
In one year, 2021, the money supply grew by 70 times this annual average from $4 trillion to $18 trillion. Most of this money surge was COVID-related. Was this smart? Probably not, but everyone panicked when leadership worldwide cried ‘wolf.’ Even the Federal Reserve (Fed) had to know this would put tremendous pressure on inflation.
Since 2021, the Fed has used two tools to manage this great influx of inflationary money. They gradually raised lending rates throughout the banking system, and they engaged in Quantitative Tightening. During QT, the Fed sells Treasurys from their ‘bank account’ (not new Treasurys). Selling these Treasurys back to the public pulls money out of circulation and into the Fed’s bank account.
Let’s see how they have done. The following graph was produced by the St. Louis Federal Reserve Bank recently (FRED).
You can see the gradual growth from 2014 to 2020 and the massive jump in 2021. Of greater significance is the portion of the graph after 2021. The Fed’s effort to reduce inflation over the last three years has only reduced M1 from $20 trillion to $18 trillion, leaving an excess of $10 trillion sloshing around in circulation. No wonder today we talk in trillions and not billions. No wonder the stock market still looks strong. No wonder it looks like our economy is good. When, in fact, the purchasing power of the dollar has dropped dramatically. Fortunately for the dollar, other countries are experiencing their own challenges.
Congress has played its part keeping excess money circulating. The ‘Inflation Reduction Act’ of 2022 authorizes the government to infuse another $500 billion into the economy (talk about wordsmithing). Almost all this money will be spent soon to reduce greenhouse gases. The tax increases to offset these funds and create ‘inflation reduction’ occur later in this decade. More short-term inflationary pressure. It cannot be smart to dump more money into the nation’s supply while excess already exists.
Does anyone really believe the Fed will be able to lower the money supply and create a soft landing?
Dann E. Kroeger, Common Sense Views on our Economy
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